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US equities: cut your losses or invest more money?

Next Monday is Independence Day in the US, but investors have little to celebrate: both US equity and bond markets have had a shocking 2022 so far. April was only the fourth month in nearly 50 years that the S&P 500 fell more than 5% and US treasuries simultaneously fell around 2%. 

“For US equities it marked the worst 4-month start of year period since 1939 (and third worst on record), while for US 10-year bonds it was the worst total return since 1788, just before George Washington’s presidency,” said Hugh Sergeant, manager of ES R&M UK Recovery fund.

The situation has not improved, and, in June, headline inflation topped 8%, while the US stock market entered bear market territory, having fallen more than 20% from its peak.So, should investors cut their losses in the world’s largest economy, or is now the time to buy?Darius McDermott, managing director of FundCalibre, says: “The US stock market is looking more attractive to me than it has done for a long time. Having led global markets for almost a decade, valuations were high, and it was difficult to justify adding to the region. 

“Now the froth has come out of the market, a number of areas are looking much better value, including smaller companies and the large mega-cap tech stocks.

“I expect to see continued market volatility as the rate hiking cycle continues, and the risk of recession is increasing, with many believing it is a matter of when, not if, it occurs. But markets move ahead of economies and much of that risk I believe is already priced into valuations. Yes, prices could go lower in the short term, but in the long term, I believe there are opportunities for investors.”

Five different ways to invest in the US

JPM US Equity IncomeDespite the naturally lower yielding nature of the US market, it has a long history of dividend payments, an increasing number of companies now paying a dividend and a number of dividend aristocrats – companies that have increased their dividends for 25 consecutive years or more. JPM US Equity Income fund targets an above-average income by investing in a diverse range of established stocks.T. Rowe Price US Smaller Companies EquityThe manager of this fund looks for both growth and value opportunities in the small-cap space, to build a diverse portfolio of the best ideas from the vast analyst resource at his disposal. He will allow his winners to run as long as he still believes there is a return opportunity, and will also invest in areas such as biotech, which other generalist funds often avoid.Schroder US Mid CapRun out of New York by Bob Kaynor, Schroder US Mid Cap has a focus on small and medium-sized companies, with a diversified set of return drivers, in order to dampen the risk of the overall portfolio. The investment process is underpinned by in-depth company analysis, which has led to superior stock selection over time.AXA Framlington American GrowthInnovation, unique brands, and intellectual property are the sort of features that can give companies a competitive advantage, helping them grow into market leaders. These kinds of stories are what manager Steve Kelly and his team hope to uncover for this fund in their quest for growth stocks in the US market. Around a third of the portfolio is typically invested in tech stocks. Brown Advisory US Flexible EquityThe manager of this fund primarily seeks out undervalued medium to large improving businesses, which rewards the fund with good liquidity (ability to buy and sell easily) and decent growth prospects. Companies with recent management change offer particular appeal. The unconstrained strategy has enabled the fund to become of the few to consistently outperform the S&P 500 over long periods of time.

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