American dream: ETFs in the US

Investors return to the land of the free to escape global unrest, as Nick Sudbury reports

It has been a remarkable start to the year with billions of dollars being ploughed back into developed markets. Most of that money is being withdrawn from emerging markets, where fund outflows recently hit a three-year high.

A period of relative underperformance has left shares in many of the developed regions looking attractive. Some of these areas have also benefited from a flight to safety as investors escape tension in the Middle East, the crisis in Japan and the risk of higher interest rates in some of the Asian markets.

One of the main beneficiaries has been the US, which is traditionally seen as a safe haven during periods of global unrest. The timing may turn out to be spot on as there are signs the American economy is starting to pick up. 

Warren Buffett, the billionaire investor behind Berkshire Hathaway, has recently said he is optimistic about the prospects for the US. He thinks the time is right to make some major investments and points out that the American system is resilient.

Star spangled performers
The world’s largest economy has been through a turbulent time in the last few years with a hard recession followed by a rather mixed recovery. Despite this, many of the ETFs in the sector have come through with flying colours.

There are almost 100 US equity ETFs with a five-year track record and all but three have made money over the period. The top dozen have each risen more than 40% with the best of the lot being Rydex S&P MidCap 400 Pure Growth. This is up 74.67% over the period and has nearly trebled in value since its low in the first quarter of 2009.

The Rydex ETF is designed to provide a pure growth style exposure to mid cap stocks and has around 100 individual holdings. Two of the other top performers are also linked to this same benchmark, one of which is the iShares S&P MidCap 400 Growth Index ETF.

Sofia Antropova, investment strategist at iShares Europe, says the stocks are selected from the S&P MidCap 400 parent index on the basis of three factors: sales growth, earnings change to price, and momentum.

“Over the last ten years, mid cap value stocks have outperformed mid cap growth stocks, but in the last couple of years the relationship has reversed with growth mid caps doing better than their value counterparts.”

Another product that has done well is the PowerShares QQQ ETF, which aims to replicate the Nasdaq-100 index. This provides exposure to the largest non-financial stocks listed on the Nasdaq and includes such well known companies as Apple, Google, Microsoft and Amazon. Over the last five years it is up 53.56%.