The US is a notoriously difficult market for funds to outperform in but according to the latest FE Trustnet study it is also tricky to be less volatile.
Indeed, over the last decade, the average fund in the IA North America sector has experienced volatility of 14.46 per cent versus the S&P 500’s 13.1 per cent.
The average sector fund has also underperformed the US large-cap index by 44.96 percentage points, as the below chart shows.
Performance of index vs sector over 10yrs
Source: FE Analytics
As such, it should come as little surprise that of the 20 per cent of funds in the sector that have experienced the lowest volatility (otherwise known as the top quintile for volatility), four are index trackers.
In fact, not even all funds in the top quintile for volatility among their peers have experienced lower volatility than the benchmark.
Top performing fund Legg Mason ClearBridge US Large Cap Growth has returned 354.86 per cent over the past decade – beating the S&P 500 by 86.9 percentage points. However, to do this it has been 0.44 percentage points more volatile, as the below table shows.
The five FE Crown-rated fund is managed by Peter Bourbeau and Margaret Vitrano who look for large-cap companies dominant in their respective industries and with a good long-term track record.
It has a large technology bias (36.15 per cent), with the likes of Amazon.com, Alphabet, Microsoft, Visa and Facebook among its top 10 holdings. The $1.5bn fund has a clean ongoing charges figure (OCF) of 1.71 per cent.
The other fund achieving returns greater than 300 per cent over the past decade with top quintile volatility is Threadneedle American Extended Alpha.
The fund has had three managers over the period, with Stephen Moore running it between 2007 and 2014. Current manager Ashish Kochar joined the incumbent Neil Robson in 2014 and has been solely in charge since October 2016.
Over the period the £185m fund has returned 339.46 per cent to investors while experiencing volatility of 13.54 per cent.
The long/short portfolio is another that is heavily weighted to technology (41.9 per cent net long), although the sector is also where it is currently finding the most shorting opportunities (5.6 per cent short). It has an OCF of 0.82 per cent.
Table of top quintile volatility funds over 10yrs
Source: FE Analytics
Seilern Stryx America is the only other fund in the top quintile for both returns (286 per cent) and volatility (13.25 per cent).
The five FE Crown-rated fund is run by long-time deputy manager Corentin Massin following the departure of Raphael Pitoun in May this year.
Janus Henderson Inst Exempt North American Index Opportunities also outperformed the S&P 500 over the period, as did L&G US Index Trust.
Both sit in the second quintile for returns which is where the majority of funds with top quintile volatility range.
Six of the 16 funds in the table above have made second-quintile returns, including three of the four passive funds.
Three more are in the third quintile with two in the fourth and Janus Henderson US Strategic Value the only fifth-quintile performer.
The $136m fund, managed by Alec Perkins since 2000 with Ted Thome and Tom Reynolds joining as co-managers in 2017, has returned 132.83 per cent with volatility of 12.86 per cent.
The portfolio is overweight financials and healthcare stocks with 14.22 per cent held in technology names.
Turning to the more volatile table, Morgan Stanley US Growth is the top performer, having returned 450 per cent over the last decade.
The four FE Crown-rated portfolio is managed by Dennis Lynch and a host of deputies with a focus on companies that have shown the ability to replicate long-term growth.
As such, technology and healthcare names make up 70 per cent of the fund, while it has no exposure to oil or financials.
The other fund to return more than 400 per cent is the healthcare-focused GAM Multistock Health Innovation Equity run by Christophe Eggmann since 2010.
The fund has returned 401 per cent over the last decade, but has been one of the riskiest, with volatility of 17.45 per cent.
There are a number of top quintile performers in the list however, which is contrary to the results shown when we have looked at other geographic areas including Europe, Asia and the global equities sector.
Table of bottom quintile volatility funds over 10yrs
Source: FE Analytics
T. Rowe Price US Large Cap Growth Equity is third on the list, having retuned 399 per cent with volatility of 16.45 per cent.
The $1.8bn portfolio was taken over by Taymour Tamaddon in 2017, who took over from long-time manager Robert Shaps.
The growth-orientated fund is underweight technology – although it still makes up 37.8 per cent of the portfolio – and is overweight consumer discretionary and healthcare stocks.
Baillie Gifford American and T. Rowe Price US Blue Chip Equity are the other top performers in the most-volatile quintile, returning 388 and 374 per cent respectively.
Only one fund - Legg Mason ClearBridge US Aggressive Growth – sits in the second quintile for returns while M&G North American Value is the sole fund on the table in the third quintile.
Nine of the 16 funds in the bottom quintile for volatility sit in the bottom two quintiles for performance however, with Eaton Vance Int (Ire) US Value the worst performer having lost 5 per cent over the last decade.
Janus Henderson Opportunistic Alpha was the most volatile (18.18 per cent) fund to record a positive return, up 118 per cent.