Investors are still ploughing capital into US funds. It has an ‘end of the party’ feel.
- £469m went into North American funds in March, on top of £780m in February
- Among the Hargreaves 10 top-selling ISA funds are Baillie Gifford American, Fidelity Global Technology and Sanlam Artificial Intelligence
- The market does not appear to be pricing in any alternative scenario
Investors continue to pour money into US funds: £469m went into North American funds in March, according to Investment Association statistics, on top of £780m in February. While it would be nice to think that investors were seeking to balance out S&P trackers with active funds, the evidence suggests they are just chasing technology returns. There are reasons why this is becoming a more precarious activity.
Investors have always chased top-performing markets and it appears that this preference for North America funds may be rooted in FOMO over the recent performance of the technology giants. The same phenomenon is evident on the platforms. Among the Hargreaves 10 top-selling ISA funds are Baillie Gifford American, Fidelity Global Technology and Sanlam Artificial Intelligence. On interactive investor, it is L&G Global Technology index trust and Vanguard US Equity Index.
Chasing the technology trade could turn out to be a great idea. Artificial intelligence may change the world, and deliver the productivity gains and economic growth it has promised. Companies may meet or even exceed the high expectations set for them. This has happened with Nvidia after all, which is set to increase its earnings by an astonishing 200% in its latest set of results.
However, the market does not appear to be pricing in any alternative scenario. There are plenty of other plausible outcomes. For example, there has been huge infrastructure investment designed to harness the benefits of AI, yet no-one is quite sure what those benefits are yet. Where will the productivity enhancements come from? And will they be big enough to justify the investment? There could be some indigestion in the market while individuals and companies decide how they are going to use AI.
Even when this emerges, there is a question over whether all companies will win equally. It seems more likely that one or two companies will emerge triumphant, while others are left languishing, having spent a lot of money trying to compete. There are also regulatory threats. It is doubtful that AI will be allowed the same free reign as social media.
For this reason, continued inflows into the US should ring alarm bells. There are opportunities in the US market, but investors are still chasing technology returns that may already be behind them.
