The US stock market remains home to world-class companies, and investment trusts offer various ways to invest in these shares across the pond.
In this column, Jean-Baptiste Andrieux, Investment trust research analyst at Kepler Partners, explains why investment trusts provide compelling ways to get exposure to the US stock market.
Every time a football World Cup kicks off, Brazil is always among the favourites.
It doesn’t matter how strong the current squad is or how they’ve played lately – their record of five World Cup wins, more than any other country, automatically puts them among the top contenders.
In the world of stock markets, US shares arguably enjoy a similar reputation, as they have historically outperformed other major markets over many calendar years – for example, in the five calendar years since 2016.
This year, however, might feel a bit like Brazil’s shock 7-1 defeat to Germany on home turf in 2014.
The S&P 500, America’s main stock index, is in negative territory (in GBP terms) year-to-date, while European and UK markets have delivered double-digit gains.
In the world of stock markets, US shares arguably enjoy a similar reputation to Brazil’s national team, Jean-Baptiste Andrieux says
While US exceptionalism may have lost some of its shine, it is worth remembering that the US stock market remains home to many world-leading companies across a broad range of industries, often without peers elsewhere.
To name just a few, think of Nvidia in the design of graphic processing units (GPU), Microsoft in enterprise software and cloud computing, or Visa and Mastercard in global payments.
The US also has a strong track record of producing companies at the forefront of innovation, as seen with Moderna’s development of mRNA vaccines during the Covid pandemic or Palantir’s leadership in real-time data analytics.
Finally, the US market includes a wide range of less high-profile, domestically focused businesses that cater to the world’s largest consumer economy.
While the market is now paying more attention to issues like potential tariff-driven inflation and rising public debt, many strengths of the US economy remain intact.
For example, the International Monetary Fund still forecasts the US economy to grow faster than other developed markets, employment has stayed steady, real wages have grown moderately, and consumer confidence is starting to recover from the post-‘Liberation Day’ slump.
Selectivity could matter more
A common way to gain exposure to US stocks is through a tracker fund. However, there’s arguably a case for a more nuanced approach going forward.
One reason is the high concentration in the S&P 500: the top 10 companies by market capitalisation now make up over 35 per cent of the index.
Moreover, the information technology sector accounts for more than 30 per cent of the S&P 500 – more than twice the weight of financials, the second-largest sector. This means a passive fund may not provide the level of diversification investors might expect.
Another reason is the elevated valuations of US stocks, i.e. the price investors are paying relative to company earnings and future growth expectations.
High valuations may not pose a hurdle if companies deliver sufficient earnings growth but can prove punitive if they fall short.
In this environment, an active manager may help separate the wheat from the chaff – and investment trusts offer different avenues to do this.
Jean-Baptiste Andrieux, of Kepler Partners, takes a look at the US stock market in our Investment Analyst column
Take BlackRock American Income (BRAI), for example.
This trust focuses on the value factor – stocks the market may be underappreciating and that therefore trade on lower multiples – while also aiming to deliver an attractive income.
It’s arguably a less typical way to invest in the US stock market and could prove useful at a time when the market looks expensive.
BRAI might also act as a counterbalance to growth-focused strategies or a standard S&P 500 tracker, which are more commonly found in many investors’ portfolios.
Earlier this year, the trust adopted a new strategy called Systematic Active Equity, which combines big data, computing power, and human expertise. The aim is to beat its benchmark by one to two per cent a year – something that could translate into meaningful outperformance over time if successful.
BRAI also now aims to deliver an enhanced dividend. As such, this trust offers an unusual way to access the US stock market, which isn’t typically a hunting ground for income seekers, as the S&P 500 tends to offer low dividend yields.
BRAI, therefore, may provide a compelling option for dividend-focused investors to gain exposure to the US stock market.
Alternatively, JPMorgan American (JAM) could be an appealing choice for investors who do not want to go all-in on either value or growth – with the latter referring to stocks the market assigns higher valuations to, due to strong earnings and expected future expansion.
The trust combines the best ideas from both value and growth managers within a single strategy, with the flexibility to shift the portfolio depending on the market outlook.
One example of a growth stock in the portfolio is Nvidia, which has been at the forefront of the AI boom.
It is by far the dominant player in the GPU market – a critical technology for powering AI models, machine learning, and data centres.
On the value side, the trust holds Kinder Morgan, which owns and operates pipelines and earns revenue from the flow of oil and gas through its terminals – a system somewhat similar to collecting tolls – generating steady, recurring income.
Interestingly, Kinder Morgan could also emerge as a less-well-identified beneficiary of the AI boom, as rising electricity demand from data centres may lead to greater need for natural gas.
This balanced approach has paid off over the past five years (to 11/06/2025), with JAM delivering 1.3 times the return of the S&P 500 Index on both a NAV and share price total return basis – a remarkable feat, given how difficult it is to outperform that index.
It’s also worth noting that JAM has a modest allocation to smaller companies, resulting in a comprehensive exposure to the US stock market.
Finally, JAM benefits from a strict discount control policy, with the board committed to buying back shares when they trade at ‘anything more than a small discount to NAV.’
As such, JAM has traded at an average discount of around three per cent over the past five years – a narrow level. This may give investors some confidence that a wide discount is not very likely to develop.
The case for smaller companies
For more adventurous investors, US small-caps may be worth a second look, having been largely left behind in the rally led by the Magnificent Seven.
While they’ve been hit harder than large-caps by market volatility since the start of the year – reflecting the fact the market sees small-caps as a riskier asset class – there’s also a case to be made that they could eventually prove more insulated from global trade tensions, given their more domestically focused revenues.
It’s also worth remembering that many of today’s US large-caps started out as small-caps – meaning that investing in this segment could offer the chance to back tomorrow’s success stories early.
To gain exposure to US smaller companies – a less liquid asset class – investment trusts offer a well-suited structure, allowing managers to hold stocks through market volatility without being forced to sell at the wrong time to meet redemptions.
One option is Brown Advisory US Smaller Companies (BASC), whose managers sum up their strategy as the ‘3G approach’: growth, governance, and go-to-market.
This means that they look for companies leading or gaining market share in large or growing industries, run by transparent, capable, and shareholder-friendly teams, with the ability to deliver unique value to customers and maintain a competitive edge.
The companies they invest in typically have strong balance sheets and pricing power, which can help them stay resilient in tougher market conditions.
Indeed, the trust performed relatively better than the Russell 2000 Index in 2022, when interest rates rose sharply, and again this year amid heightened trade tensions.
That said, BASC hasn’t outperformed its benchmark since Brown Advisory took over in 2021, but the team’s open-ended fund has a strong long-term track record, having beaten the Russell 2000 Index since its launch in 2007 and over the past decade.
BASC currently trades at a wide discount of 10.5 per cent, presenting potential additional upside for shareholders on top of the performance of the underlying assets if the discount narrows or even closes.
This could happen in an environment more conducive to small-caps – such as an economic recovery or early growth phase – when investors are more confident and willing to take on risk.
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