Are North American equities safe again?
North American equity funds have seen a rise in April, but until a COVID-19 vaccine is available, getting back into the market is still a risk.
According to FE Analytics, within the Australian Core Strategies universe, only three of the 12 fund North America equity sector saw a positive return with an average loss of 5.53%, over the year to 30 April, 2020.
The best performing fund was BetaShares NASDAQ 100 ETF that returned 10.76%, followed by the SSgA SPDR S&P 500 ETF Trust (8.16%) and BetaShares U.S. Equities Strong Bear ETF Currency Hedged (7.89%).
This was followed by Pendal American Share which lost 1.94% and VanEck Vectors Morningstar Wide Moat ETF (-2.17%).
However in April, BetaShares Geared US Equity Currency Hedged returned 27.46%, followed by THB
US Micro Cap (11.57%), BetaShares NASDAQ 100 (7.67%), VanEck Vectors Morningstar Wide Moat (6.49%) and Vanguard US Total Market Shares Index ETF (5.88%).
David Bassanese, chief economist at BetaShares, said despite the overall boost for the sector in April it may still be too risky to invest.
“Until such time as a COVID-19 vaccine is widely available, it's fair to say equity markets around the world - not just in the US - are at risk of further weakness in coming months, especially given the strong gains in recent weeks,” Bassanese said.
Tech stocks, particularly the FANGs (Facebook, Amazon, Netflix, Google), had been resilient during the crisis, but there was no guarantee it would continue to hold up.
“The US market has run harder than most in recent time, but this reflects the relative perceived earnings resilience of US tech stocks, such as Google, Amazon and Facebook,” Bassanese said.
“But even these companies will face some earnings pressure as consumer spending slows and global advertising budgets are cut.”
BetaShares NASDAQ 100, SSgA SPDR S&P 500 and Pendal all held Microsoft, Apple, Alphabet, Amazon in its top holdings.
“Even if equity markets weaken again, I think we'll find US tech stocks still holding up relatively well,” Bassanese said.
“And they remain well placed to continue performing well when equity markets eventually move into the next bull market phase.
“Indeed, economic shutdowns have likely accelerated the structural change toward more economic activity taking place online.”
Bassanese said it was not tech alone that was performing, as the healthcare sector saw a boost.
“It is largely a tech story, though another supportive sector is healthcare – where the race for a vaccine or at least better drug treatments for COVID-19 is on in earnest,” Bassanese said.
The US Bear ETF saw a 22.64% rise in March alone, as markets were hit by mass selloffs while the US Government reacted to the COVID-19 pandemic, but had since lost 26.98% in April.
It was negatively correlated to the returns of the US share market, measured by the S&P 500 index, hedged to the Australian dollar.
Top five performing North American equity funds over the year to 30 April 2020
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