As the most dynamic, flexible and successful material-wealth-building economy in the world, the U.S. deserves your investment attention. Every Canadian investor should have some exposure to U.S. stocks.
Compared to last year, when the S&P 500 Index rose by about 30 per cent, stock markets in the U.S. have suffered a bit of a reality check this year. So far, the S&P 500 has risen just 4.5 per cent.
The question on many investors’ minds after the weakness in markets in recent weeks, however, is: will there be a full-blown correction this year? If so, we would consider such weakness as a healthy sign after the absence of any substantial correction these past few years. It would give investors the opportunity to purchase shares at lower valuations, thus improving their long-term return potential.
We’ve been relatively cautious on U.S. markets lately, given that they seem fairly valued. Hence, we’ve tended to emphasize the more attractively-valued markets in Europe and the developing world for investors who have a higher risk tolerance and a suitably long investment time frame of at least 10 years.
A highly flexible economy
Yet a market correction in the U.S., we believe, would provide investors with an opportunity to increase their exposure to what is most certainly a remarkable economy. The nation has faced its successes and its shortcomings with equal energy. Ardent individualists guarding their rights and freedoms, Americans readily embrace the freedom to fail, confident in their collective ability to recover.
Perhaps one of the most beneficial results of the admission of defeat in enterprise is the rapid redeployment of resources to more productive activity. This has occurred most lately in the rise of American self-sufficiency in energy, thanks to new technologies that have allowed for the efficient extraction of energy supplies.
Included in all this, of course, is the redeployment of human capital — intelligence, ingenuity and energy. Americans, more than most others in the world, embrace change, retraining and repositioning their workforce. The result? A highly flexible economy.
Harsh on some, without question, the American way nevertheless has been producing many of the world’s greatest technological advances. In a nation of economic winners — both individual and organizational — investment can pay off handsomely. Provided you do it properly, of course. For the equity investor that means holding a portfolio sufficiently diversified to avoid disaster and involving a level of risk commensurate with the investor’s circumstances.
But not everybody has the time or the desire to build a diversified U.S. stock portfolio. If that’s you, we recommend PH&N U.S. Equity Fund (RBF1160 (NL)) and TD U.S. Index Fund – e (TDB902 (NL)).
Phillips, Hager & North U.S. Equity Fund’s investment objective is to provide significant long-term capital growth by investing primarily in a well-diversified portfolio of quality U.S. common stocks. Its focus is on the energy, financial and health-care sectors of the U.S. economy. Indeed, within the energy sector, the fund has gone from an underweight position to overweight over the past quarter through purchases of exploration and production companies.
TD U.S. Index Fund – e is an index fund that tracks the performance of the S&P 500 Index. Index offerings are attractive because you don’t have to worry a lot about whether they’ll underperform their benchmark by a significant amount. Then too, their low management expense ratio — in TD U.S. Index Fund -e’s case just 0.35 per cent — also adds to their appeal.
Money Reporter, MPL Communications Inc.
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