Investing in the US: use a fund manager or pick your own stocks?

The US stock market is the biggest in the world and has grown in popularity among investors in recent years. It’s home to giants of industry spanning a range of sectors, from technology, energy and food to industrials, travel and healthcare.

For those seeking exposure to this part of the world, a key decision is whether to invest directly via individual shares or opt for an actively managed fund, where a market professional will manage your investments and make decisions on what to buy and sell. You pay an ongoing charge for their services, with the goal of this investment outperforming the market.

Which route you take will depend on whether you’re comfortable with the risk and time involved in picking shares, whether you’re looking to tap into someone else’s expertise, or whether you simply don’t have time to research and monitor the market. There is also a third option, which is to invest in a tracker fund that simply mirrors the market rather than trying to outperform it.

Using funds to invest in the US

First-time investors might prefer to pick a fund rather than individual shares as it should provide diversified exposure to the US and spread your risk across a range of companies, rather than relying on one or a handful to do well.

There are a range of actively managed US funds or investment trusts available on the AJ Bell platform. These can be held in an ISA, SIPP (Self-invested personal pension) or Dealing account. The range includes funds that focus on a certain size of company – such as large or small – as well as ones that invest in fast-growing businesses or ones that pay out dividends.

One starting point is to look at AJ Bell’s list of Favourite funds. Selected by our investment specialists for the value they offer to investors, among other characteristics. For example, the list features Artemis US Select, a capital growth fund whose holdings include retailer-to-cloud computing provider Amazon and banking group Goldman Sachs. JPMorgan US Equity Income is also on the list, investing in a range of companies that pay dividends, including insurance provider UnitedHealth and AbbVie, the scientist behind Botox.

Another way to explore the range of funds is to use AJ Bell’s search facility where you can search by North America or North American Smaller Companies sectors. This helps to narrow the universe.

You can search by various metrics including past performance, ongoing charge and Morningstar rating. The latter is a score from one to five based on how well a fund has performed in comparison to similar investments, after adjusting for risk and accounting for all relevant sales charges.

Getting US exposure via individual shares

For those who want to buy individual shares, AJ Bell offers a wide range of names that trade on the US stock market, from iPhone maker Apple and theme park operator Walt Disney to drinks giant Coca-Cola and technology group Microsoft.

Keep in mind that if you are looking to buy US investments in any account other than a SIPP, you’ll need to complete a W-8BEN form. As well as allowing you to deal in US shares, this form means you pay half the level of withholding tax for qualifying US dividends, at 15%. You will also need to factor in foreign exchange charges when investing in US shares. Our international dealing page has more information on what you can buy, the costs involved and tax treatments.

There are two US-based stock exchanges: the NYSE and the NASDAQ, which are the world’s biggest and second biggest exchanges respectively, and they follow the same opening times from 9:30 am to 4:00 pm local time. For UK investors, this means you can invest between 2.30pm and 9.00pm UK time.