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Everyone loves the US market. Gainsayers have thrown in their hands, as evidenced by the flows to the IA North America sector over the 12 months to November: almost £37bn—more than any other sector.

For that, you get exposure to the world’s largest, most liquid and, it seems, dynamic equity market.

Largest, and getting ever larger. The US is now more than 60% of broad global equity indices. Apple AAPL, the largest stock, is generally more than any ex-US country weight, other than Japan. It’s larger than the whole of the Chinese market. Larger than China! That’s the world’s second-largest economy—indeed, the largest on a purchasing power parity (PPP) basis. Despite this, the country tends to weigh in at less than 3% of global equity indices, or roughly the same as Amazon.

In March 2009, as the world economy rebounded from the global financial crisis, the US’ weight in global indices was between 40% and 45%. Its share of the whole has therefore increased by about 20 percentage points.

Not only have we seen an increase of the US weight over recent years, but a concentration within the US market itself. The six largest stocks in the S&P 500—Apple, Microsoft MSFT, Nvidia NVDA, Amazon AMZN, META, and Alphabet GOOGL—make up just under 30% of the index. In March 2009, the top six stocks were about half that.

The makeup of the top 10 table below makes for interesting reading, both now and as it has evolved. Two years ago, the top performer was an energy ETF in which oil & gas stocks Exxon Mobil and Chevron together made up more than 40% of the fund. Twelve months back, this was still the case, with the SPDR S&P US Energy Select Sector UCITS ETF Acc having returned 173% over three years—more than treble the next fund.

And so it is this time round, with the fund holding on to the top spot, albeit at “only” a 102% gain over three years. This is, of course, an outcome of sector performance: if you’re holding this, it’s because you want exposure to the energy sector, not because you want general exposure to the US market.

Ten years ago, it would have been unlikely to see the table below populated in the way it is: seven of the 10 are passive ETFs, which was pretty much the case last year. Four of these, including the table leader, are sector funds, covering energy, tech, industrials. One is an ESG-screened S&P fund—interesting, perhaps, given that it has outperformed the conventional index over three years in a period where the mood music around ESG, especially in the US, has been rather negative.

Two, however, give investors particular style exposures to the US market: Invesco S&P 500 QVM UCITS ETF and the WisdomTree US Quality Div Growth UCITS ETF. The QVM of the former stands for Quality, Value, and Momentum, and the fund tracks an index that screens the S&P for companies that score well on these factors. The latter tracks an index comprised of dividend-paying US companies with quality and growth characteristics and, like the former, screens for quality and momentum. They are, as you might expect, stylistically similar, and Lipper characterises them as large-cap value. Indeed, seven of the 10 are value funds. This ability to give investors access to particular style exposures at a relatively low cost is one of the advantages of ETFs.

Despite the ongoing market love affair with the Magnificent Seven, the Artisan US Value Equity Fund, at second place, offers market-beating returns with relatively little exposure to these behemoths, targeting companies the manager believes are undervalued, but with strong cashflows.

The world loves the US market. As of now, it’s loving them right back, but you need to be aware that this involves an increase in risk as a result of the greater concentration and be comfortable taking that.

Table 1: Top-Performing North America Over Three Years (with a minimum five-year history)

(Click on image to enlarge)

All data as of November 30, 2024; Calculations in GBP

Source: LSEG Lipper

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