Overseas Investors Seek US Gold

09/25/2008 12:00 am EST


Andrew McHattie

Editor, Investment Trust Newsletter

Andrew McHattie, editor of the Investment Trust Newsletter, discusses the use of investment trusts to get US exposure.

The geographical reach of the investment trust industry is wide, yet when it comes to the US, the world’s largest equity market, investment trusts are [few and far between]. Search for funds focused on America, and you’ll be able to count them on your fingers.

Why is the US so apparently underrepre­sented? The simple answer is that institutional investors feel able to manage their own US investments, without paying another manager. American markets are highly liquid, highly transparent, and informa­tion is plentiful. [Also,] there tends to be a degree of skepticism about the ability of the world’s largest economy to maintain its leading position. Whatever the reasons, professional investors in the UK typically underrate the US.

Looking for mainstream US trusts, we find only two. There is Edin­burgh US Tracker, (OTC: EDUTF) and JPMorgan American (LSE: JAM).

In some respects, however, none of these American offerings really stands out and captures our imagination. Of course, a host of other trusts [have] some of their assets in the US, so the net can be cast a little wider.

But at times like these, the much-maligned [global] generalist trusts can prove valuable. Those which are genu­inely international in scope rather than “UK-plus” trusts are bound to have a good proportion of assets in the US.

Some of the higher percentages [invested in the US] belong to JPMorgan Overseas (LSE: JMO, 35%); (its largest concentration is financial, and US holdings include El Paso Group (NYSE: EP and Cisco Systems (Nasdaq: CSCO)—Editor); Independent Investment Trust (LSE: IIT, 29%) (largest concentration is in the oil industry, and US holdings include Halliburton (NYSE: HAL) and Transocean (NYSE: RIG)—Editor); and Edinburgh Worldwide (LSE: EWI, 26%) (wide diversification but a concentrated portfolio of 40 or so holdings includes Amazon (Nasdaq: AMZN) and Deere (NYSE: DE)—Editor).

If the US were to post a relatively strong performance, or if the dollar were to continue to strengthen against sterling, we might expect more [British and European] investors to return to these large trusts, which form the bedrock of the investment trust industry.

(Editor’s note: UK investment trusts are not available to US investors, but may be available for Canadian investors, via the London Stock Exchange.)

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