The land of opportunity

WHILE Europe desperately struggles to escape Greek contagion, the US is fighting its way out of recession.

In the first three months of 2010, US GDP rose 0.8 per cent, putting the annualised rate at 3.2 per cent. Over the same period, Germany and the UK grew just 0.2 per cent, France and Spain grew 0.1 per cent, and Greece fell 0.8 per cent.

So should you be diverting more of your funds across the pond? The answer is a qualified maybe.

For every step forward, the US is taking a step back. GDP may be rising, but so is its trade deficit, which struck a 15-month high in March at $40.4bn, including a $16.9bn deficit with China.

An extra 290,000 jobs were created in April, but unemployment still rose from 9.7 per cent to 9.9 per cent as more people registered as looking for work. Housebuilding rose to a 16-month high in March, but repossessions hit an all-time high, as banks worked through their backlog of foreclosures. Rising consumer confidence has been undercut by rising oil prices.

The US economy still faces strong headwinds, but many companies are sailing ahead, says Brenda Reed, portfolio manager at Fidelity’s Global Focus Fund. “My fund has been overweight in the US for the past year. I’ve been very impressed by how US management has aggressively cut costs in the downturn, and this will put them in a good position when the global recovery finally comes.”

She sees plenty of opportunities in the US technology sector. “After surviving the dot com boom, tech companies know how to cope with hard economic times. Their share prices have risen lately, but they are still cheap. I can also see opportunities in industrials, where companies are working hard to drive growth.”

Reed expects the US to continue to beat expectations. “We are seeing fresh life in the luxury goods market, demand for cruises is rising, and air traffic is also increasing. We could see surprisingly high company earnings growth, but this hasn’t yet been priced into the market.”

Andrew Holliman, fund manager at Threadneedle American, says the US is leading the developed world out of recession, and expects this to continue. “US companies have high productivity and a flexible labour force. Corporate profitability is rebounding strongly, with very strong first quarter results,” he explains.

US property prices have now fallen closer to historic norms. He adds: “Unlike the UK and much of Europe, the US has got its property price correction out of the way, which gives it a strong platform for the future. Recent job growth should also help power the economy.”

The dollar is likely to strengthen against the pound and euro, which should boost returns for UK investors, says Holliman.

But growth is unlikely to repeat the highs seen before the credit crunch. “The US government still has a huge budget deficit and reducing that will put huge pressure on the economy. Taxes will have to rise, slowing the recovery.”

Some funds have managed to do well, even during the financial crisis. For example, Neptune US Opportunities was the top performing UK-based unit trust over the past three years, growing 37 per cent, according to Schroder US Mid Cap, GAM North American Growth and BlackRock US Opportunities all grew more than 30 per cent over the same period. On top of that, Threadneedle American Smaller Companies grew 34 per cent, while investment trust JP Morgan American grew 28 per cent.

Now that the US economic recovery seems firmly on track and corporate America is performing strongly once again, these funds should continue to offer investors plenty of opportunity.