US stock market review: what are the prospects for investors?

The year started on the front foot for US markets as newly elected President Donald Trump’s policies of deregulation and tax cuts were expected to boost the economy. Yet momentum abruptly reversed as proposed tariffs led to a sharp sell off. Despite tariffs being a key Trump policy, not many expected such an aggressive trade agenda.

By late May US and global stock exchanges recovered their poise as the US administration softened its stance, offering encouragement for investors. Yet trade issues still hang in the balance. There is likely to be an economic impact that will be felt across the US corporate world and beyond. Tariffs pour cold water on economic growth, making businesses delay investments and consumers more cautious with their spending. The uneven path to agreements could be set to weigh on US and global growth for some time.

Amidst the April sell off the technology and consumer discretionary sectors were hit hard. Smaller companies too were volatile, despite more domestically orientated businesses being thought to be significant beneficiaries of Trump's protectionist policies initially. However, they are also typically more sensitive to any economic downturn, as well as stubborn inflation and interest rate rises that might result from elevated import costs.

It is also worth noting that a fall in the dollar of around 8% since the start of the year, again driven by trade concerns, has represented an extra setback. Despite the broad Wall Street indices moving back towards all-time highs, the weaker currency has meant significantly weaker performance for UK investors in US assets.

An uncertain outlook, but the US is too big to ignore

Where there is uncertainty and volatility there is often opportunity. Given it accounts for almost two thirds of global stock market worth, the US is far too big to dismiss or ignore. The history of the biggest listed companies in the world has been varied, but American companies have always featured. It will likely remain a great place to do business, even if yesterday’s winners aren’t always the ones you want to hold tomorrow.

As we move through this year and into next, news flow around trade is likely to heavily influence market sentiment and direction. Here, things are far from clear cut. The recent agreement between Washington and Beijing to lower tariffs is welcome, but it is only a temporary deal. There’s no guarantee the lower regime established will be rolled over into a new reality for all-important US-China relations.

If both sides dig in and tariffs start to bite there could be the mitigating factor of lower interest rates. A slowdown gives the Federal Reserve the impetus it needs to put cuts back on the table, and that stands to backstop the economy and give some areas a lift.

Passive vs active in US markets

A passive investment management approach of simply following an index, such as the S&P 500 index fund has produced strong returns over the past decade given the level of ‘concentration’ in the US market. The passive, or tracker, funds on our Preferred List are Fidelity US Index Fund and Vanguard S&P 500 UCITS ETF, which both offer simple and cost-effective exposure to the sector.

For many years active funds have been swimming upstream in their attempts to beat passive funds dominated by tech behemoths, notably Nvidia, whose outsized returns have made the benchmark followers tough to beat. Calendar year 2023 and 2024 were the ‘narrowest’ markets since the ‘Dotcom’ bubble in terms of the smallest number of constituents generating out performance.

It has been less plain sailing for a passive approach more recently. A stumble in tech, first related to concerns around the potential returns on investment in Artificial Intelligence, and then from tariff worries, left a purely passive approach exposed to volatility.

Yet following better news around trade deals, as well as some reassuring company earnings results, many of the index heavyweights rallied most, leaving more economically sensitive areas such as energy and consumer stocks in their wake. Meanwhile, healthcare and pharmaceuticals stocks were left trailing by President Trump’s promised crackdown on prescription drug prices.

As such the past year has been a tough one for most active funds, particularly those adopting a ‘value’ approach of targeting cheaper stocks, or those with significant exposure to medium-sized and smaller companies.

Charles Stanley review of recent investment fund performance

Overall, here’s how the actively-managed funds in the North America sector on our Preferred List got on over the past year with commentary on each fund detailed below.

Past performance is not a reliable indicator of future returns. Figures are shown in £ on a % total return, bid to bid price basis with net income reinvested; Source: FE Analytics, data to 30/04/2025.

US funds to consider

1. Artemis US Extended Alpha

The manager looks to ‘extend’ the stock market opportunities available by supplementing a traditional portfolio with additional and offsetting ‘short’ positions that benefit from falls in the value of a chosen investment. The market exposure in the fund can therefore vary between 85% and 115%, but is typically around 100%.

Performance over the past year has been hamstrung by healthcare stocks, an area that has since been dialled back as greater risks emerged. Overall, the managers are excited by the range of long and short positions, believing market performance can broaden out. In particular, they highlight recovery potential in infrastructure, life sciences, packaging and banks. In their view, there are many dependable companies that can ‘compound’ their earnings at depressed valuations. Meanwhile, they believe there are significant dangers for investors around AI overexuberance and disruption, as well as an economic slowdown that could leave some businesses exposed.

We retain confidence in the management team’s stock selection capabilities and the level of differentiation it can provide from its peers and the broader index. With the long/short element it has the ability to keep up in rising markets but also protect capital during times of market stress – though this is only the case if the managers get their tactical approach right. It should also be noted a performance fee adds to the cost of the fund if it provides market-beating returns.

2. Brown Advisory US Sustainable Growth

Run by Karina Funk and David Powell, this fund’s approach prioritises sustainable and steady growth when assessing company prospects. Each company owned must have a ‘sustainable business advantage’ which helps clarify the team’s thinking on how sustainability can help drive revenue growth. Holdings are on average higher quality, higher growth, and often trade at higher valuations than the benchmark average.

A lack of exposure to the ‘magnificent seven’ tech stocks, save for a position in Nvidia, hurt relative performance over the period as the managers struggled to justify these stocks’ valuations. The Brown Advisory US Sustainable Growth Fund was also heavier in the healthcare sector than the index, which dragged. The managers have used the recent volatility to add positions they previously viewed as too expensive but believe to be beneficiaries of long-term secular trends that should outlive tariff disruptions and geopolitical issues.

3. Fidelity American Special Situations

This fund takes a contrarian, value-based approach with the managers Ashish Bhardwaj and Rosanna Burcheri aiming to uncover businesses that are unappreciated and therefore cheap to buy. The aim is to provide a ‘margin of safety’ by buying fundamentally sound companies below their true worth. As such the manager avoids more expensive shares and the fund has almost entirely missed the rise of ‘big tech’ over the past decade. To guard against ‘value traps’ stocks must possess an identifiable long-term tailwind and not be part of a ‘dying’ industry.

Not holding Microsoft, Amazon and other successful tech heavyweights has hampered relative performance versus the S&P 500 over the period. However, the fund has at times captured the broadening out of market returns, demonstrating its diversification benefits in a portfolio. Despite the fund’s approach being at odds with market trends for the best part of a decade, the medium and longer returns are respectable as it has had some strong periods such as the first half of 2022 when most of its peers struggled.

Compounding the underperformance for stylistic reasons was some disappointing stock selection in the retail sector. But the major reason for recent disappointing returns is simply not owning Nvidia and the rest of the magnificent seven apart from Alphabet. The managers believe huge AI spend will lead to overcapacity and poor returns on capital for the tech stocks that have sunk money into it.

4. Jupiter Merian North American Equity

This fund takes a systemic, quantitative approach, driven by data science, and tends to deviate less from major US equity benchmarks compared to many actively managed funds. For that reason, it was not surprising to see the fund able to keep up with the index better than the other actively managed US funds on the Fundlist over the past year.

The strategy assesses companies against five key characteristics the team believe have predictive power of future stock price movements. Its style will ‘flex’ across different macroeconomic conditions, meaning it cannot be categorised as either a ‘value’ or ‘growth’ strategy, though the portfolio will have an overall tilt towards certain value and quality factors, as supported by academic evidence.

A narrow leadership market environment isn’t necessarily ideal for his strategy and having reaped the rewards of full weights to larger stocks, especially the magnificent seven, over 2024, a dialling back of that exposure was subsequently unhelpful more recently. The managers note that Trump’s election win has added to the level of dispersion between stocks which tends to be helpful for active managers, though that has yet to be borne out to any significant degree.

5. Premier Miton US Opportunities

Managers Hugh Greives and Alex Knox have a bias away from larger businesses and towards mid-sized US companies. Their approach results in a concentrated and differentiated portfolio that can add to risk but mean outperformance if they get their stock selection right – and underperformance if they don’t. The duo’s process centres on identifying quality companies and paying appropriate valuations, taking a more nimble and pragmatic approach wedded neither to growth nor value stocks.

The Premier Milton US Opportunities Fund could be a useful complement to a US portfolio allocation dominated by mega-cap tech heavy trackers. It is significantly different to the S&P 500 Index and has never held the likes of Alphabet, Meta or Amazon. The team are very sceptical of the AI boom, notably so of Nvidia. The top holdings will often be unfamiliar names.

As such it’s been a difficult period of performance with the huge headwind of no big tech exposure combined with a portfolio heavy in medium-sized, often more domestically orientated companies that have felt the full downdraft of investor concerns about the impact of tariffs on consumer spending and business investment.

Typically, the fund has more in common with a small and mid-cap US fund than its immediate peers in the North America sector, and combined with a concentrated portfolio of fewer than 40 stocks there is typically an active share versus the index of well over 90%. In this context performance has been respectable.

We think a genuinely active, broad market approach in the US is an important diversifier. This fund could sit well alongside passive US equity exposure that has worked so well for so long. It could also be a useful tool for investors wary of the concentration of the US market and think mega-cap dominance is unlikely to persist.