It perhaps seems strange that SOME investors don't invest in American shares.

Are British investors missing a trick by shunning Wall St?
Nine of the world's biggest brands are American. Should we be backing Gekko's greed?

By Paul Farrow, Personal Finance Editor
Published: 11:30AM BST 08 Oct 2010


As Gordon Gekko returns to the big screen, should British investors be rethinking their lack of American exposure?  Talk of investing in the US evokes images of Gordon Gekko, the king of Wall Street, all braces and pinstripes, making multi-million-dollar deals and living the high life. Yet the Eighties blockbuster film did little to encourage British investors to grab a slice of the American investment pie.

More than two decades on and Michael Douglas has reprised his role as Gekko in the sequel Wall Street: Money Never Sleeps. Yet, Wall Street might as well take 40 winks where British investors are concerned, as they continue to shun the world's biggest stock market – it was the least popular sector according to the latest monthly statistics from the Investment Management Association.

It perhaps seems strange that British investors don't invest in American shares. After all, nine of the world's biggest brands are American – they are names we know and we contribute to their prominence. Take an IBM laptop into McDonald's, sip a Coca-Cola, check your email on Microsoft Outlook and surf on Google, and you will have embraced five of the top six in one swoop.

Yet despite its familiarity, financial advisers have never been too keen on selling the US story to investors.

Brian Dennehy at advisers Dennehy Weller & Co has been avoiding the US since 1996 and said that few have found good reason to buy the US market since: "The US is all too often at the epicentre of investment stupidity, from the Long Term Capital Management (LTCM) saga in 1998, the technology bubble of 2000, the property bubble that is still painfully deflating – and the greedy and feckless are now being set up for a roller-coaster in gold from which few will exit with profits [if a classic bubble inflates].

"There is dynamism and resilience built into the US economy. But what's the point for a UK investor when we can opt for more reliable growth areas in Asia?" he said. Hargreaves Lansdown simply thinks British fund managers aren't that good at delivering the goods. But it also agrees with Mr Dennehy and said that when it comes to investing on the other side of the Atlantic, other overseas sectors such as global emerging markets are more exciting.

Mark Dampier at Hargreaves Lansdown said: "In my 27 years in the industry I have never bought an American fund, perhaps that tells you everything."

Not that all financial advisers are downbeat.

Alan Steel at Alan Steel Asset Management is baffled as to why British investors shun the US. But he suggests that it is difficult to ignore a nation whose GDP is equal in size to the GDP of France, the UK, Italy, Brazil, Canada, Spain, Russia and India added together.

"The US market has always gone up strongly following the first two years of a new president's first term, going back to the Thirties, and we are about to enter the sweet spot," Mr Steel said.

"On top of that, demand has come in the past from times when a new generation is significantly bigger than the previous one. Generation Y, as it is known, is reckoned to be 20pc bigger than the baby boomers. No other country has this phenomenon as far as I can see."

The US economy is still in recovery and continues to run in fear of a double dip. Its latest job data showed an unexpectedly poor reading on private-sector hiring as employers cut 39,000 jobs in September, according to the ADP Employer Services report – the largest monthly loss since January.

Tom Walker, a fund manager at Martin Currie, the Edinburgh investment house, said the economic news continues to be "very mixed". "We do not expect a 'normal' economic recovery, but do expect growth to continue, albeit at a modest rate."

Mr Walker admitted that valuations look promising, but that there will be as many hits as misses. "This is not an environment where all boats are going to float and stock selection is more crucial than ever. The market valuation, looking exceptionally cheap, remains key," he added.

Felix Wintle, who manages Neptune US Opportunities, thinks many investors have seen the S & P500 remain flat for a decade and therefore not thought they had missed out. "The US market is 5,000 strong and companies are at the heart of innovation – these companies, such as Apple, create new world themes, plus we have hundreds of different business models from which to choose the best," he said.

Mr Wintle points to technology where in the UK, he says, British investors are limited to the likes of Logica and Sage, or in the retailers there are just a handful of shares such as Tesco and Next. "In the US we have so much choice because it is such a big market," he said. "The latest earnings figures are smashing the ball out of the park. Companies have restructured and become leaner organisations over the past couple of years."

Advocates of the US also argue that its companies are a conduit to emerging markets, which makes them an intriguing play for the contrarian investor who thinks that the likes of China are overcooked. "The US is a bit like the UK in that it is not a domestic play," said Tom Stevenson, investment director at Fidelity. "But its companies have been far more aggressive in making cuts than most and they are relatively cheap. It is one for the contrarian to consider."

http://www.telegraph.co.uk/finance/personalfinance/investing/8050267/Are-British-investors-missing-a-trick-by-shunning-Wall-St.html