Some of the steepest declines in equity markets this year have come from the US market, particularly in growth sectors like technology and communication services. The blue-chip S&P 500 index was down three quarters in a row in September for the first time since the financial crisis.
But there is a silver lining for UK investors who have been hit by US exposure. As American share prices have plummeted, British investors have seen more modest falls in their portfolios compared to their US counterparts because the pound has fallen at the same time.
Jason Hollands, of the investment firm Bestinvest, said: “While the S&P 500 index of US shares is down 19pc this year, in pound terms a UK investor would have suffered a far less severe decline of 4pc – unwelcome, but not a disaster. And instead of the 22pc decline in global equities, the pound-based investor has endured a far less brutal 7pc dip.”
If a US stock performs well, then a UK investor will see a double benefit: a capital gain and a currency gain.
Mr Burgeman recommends some of what he termed the “stalwarts” which are modestly rated but still offer attractive longer-term growth prospects. He said: “I would consider Johnson & Johnson (up 2pc in dollar terms, but up 22pc in sterling terms), Walmart (down 4pc, but up 16pc in sterling terms) and Texas Instruments (down 13pc in dollar terms and up 4pc in sterling).”
But Mr Hollands warned that investors should be cautious of using weak pounds to buy “vulnerable” US shares. The safer place for UK investors, he said, is in the FTSE 100, London’s benchmark index. He said: “These companies, which collectively make over 70pc of their earnings overseas (much of which is in dollars), are only modestly exposed to the UK’s domestic economy and will benefit from translating overseas earnings back into sterling reported profits and dividends.”
He also said investors can get exposure to large British companies through low-cost tracker funds such as the iShares Core FTSE 100 ETF, which has an ongoing charge of just 0.07pc, or more expensive actively-managed funds like Ninety One UK Alpha and Liontrust UK Growth.
