Taking a confident approach to cherry picking US shares

Published on Friday 17 July 2009 19:47

LADY Tana Focke has managed the Smith & Williamson North American Trust for more than 11 years, prior to which she worked for 20 years as a US broker. This experience allows her to take a very pragmatic view on what investors in the fund want from fund managers.

"If you can do better than the index you're measuring yourself against, you will automatically be doing better than most investors," said Focke. "Index tracking funds, for example, will only ever deliver the return from the index less the costs of running the portfolio."

The fund was launched in 1983 to give Smith & Williamson's clients some exposure to the US market. The fund is benchmarked against the FTSE USA Total Return index and despite not having a specific out-performance target, Focke seeks to "outperform by as much as possible, but without taking on undue risk". The fund is down by just 8.4 per cent over the past 12 months, compared with the index fall of 27.3 per cent.

For stocks to be considered for the 82-strong portfolio they need strong balance sheets and good quality management, said Focke. "Thirty per cent of the fund is held in core stocks, principally as a risk control. Holding them avoids the situation where the price of, say, Microsoft leaps due to positive news, but we decided not to own it. If your enemy is the index, you'd better be invested in the main constituents of it."

Visiting the United States three or four times a year, Focke and her colleague, Robert Royle, build company visits around the main geographical centres for their target sectors. "If you want to see media companies, go to New York, but if you want to see 'smoke-stack' America you go to Chicago," she explained.

The fund can also hold Canadian companies, which presented an opportunity to own a quality bank during the meltdown in the sector. "Accounting rules are more stringent there and Royal Bank of Canada has grown its dividend by 15 per cent over the last three years," said Focke.

Knowing when to sell is extremely important and one common catalyst for Focke to do so is a loss of confidence in the management.

"If I speak to management three weeks before an earnings announcement and everything is fine, then they announce a fall in earnings, I start to question if they actually know what they are doing."

&#149 Barry O'Neill is a chartered financial planner with Thomson Shepherd Ltd (incorporating Coggans Wood)