Fund Awards 2013: North America

Best larger fund: JPMorgan US Equity Income

The US has the largest stockmarket in the world. Yet many UK investors only have a small exposure to North America through global funds. Income investors tend to be even more underexposed, as there have been very few income funds that specialise in the US market.

However, this year our winning North American fund is not only US-focused but is also designed to produce a regular income. Yet the £1.3 billion JPMorgan US Equity Income fund is likely to appeal to more than just income investors when it is borne in mind that since 1926 dividends have accounted for more than 40% of the S&P 500 index's total return.

Clare Hart, and her co-manager Jonathan Simon, are based in the US and have managed this fund since its inception in 2008. They were also running the same strategy for five years prior to that in the US. They look for companies with durable franchises, consistent earnings and strong management teams. But the valuations also have to be right, so they look at both qualitative and quantitative factors to assess potential versus current market value.

Part of the process is also, obviously, the search for dividend yield to generate income and enhance total returns. For them to invest in a company, the yield on a share must be at least 2%. There is also an emphasis on diversification, which helps to make the portfolio less volatile. The fund holds shares in between 85 and 110 companies, with a maximum weighting in any one company of 5%.

Hart and Simon also have a strict discipline for selling stocks and dispose of companies that become overvalued, or when something changes or a better idea comes along.

The managers believe the outlook for the fund is good. They think valuations still look attractive and that dividend yields are compelling, pointing out that more US companies are expected to start paying dividends. The percentage of companies paying dividends is projected to rise from 76% currently to 90% in three years time.

Best smaller fund: Old Mutual North American Equity

Our winner in this category, though a smaller fund at £68 million, has a well-diversified portfolio of more than 100 shares. Its lead manager is Ian Heslop, supported by Amadeo Alentorn and Mike Servent. They are the same team responsible for our highly commended small fund in the Global Growth category.

The Old Mutual North American Equity fund invests mainly in the US with a small exposure to Canada. As well as filtering companies according to their financial characteristics, the managers also consider market conditions in order to identify best-of-breed stocks, whatever the financial climate.

The mix of sound fundamental stock selection alongside the market analysis gives a flexible investment process exposure to many types of stocks. Heslop explains: "We invest in companies that are good value, good quality, with strong and stable growth, showing good price momentum or other types of characteristics we expect to outperform in the coming period."

He says there were several factors working in the fund's favour over the past three years. "Stocks that are cheap relative to their underlying valuation and those with good quality characteristics have been performing well. It has also been a period where identifying companies with good management has added strongly to overall performance."

Heslop believes it is likely markets will continue to be impacted by difficult-to-predict economic events which will require a dynamic investment process. That said, he thinks the current market will not last forever and we are likely to return to fundamental company-driven returns at some point in the future. Although the timing of this shift is difficult to predict, Heslop does not believe it will lead to a reduction in performance.

He argues: "The current environment is beneficial to stocks that have recently performed well as this is likely to continue due to the lower volatility seen in the market. We are also looking more at mis-priced growth companies given the market direction, which normally leads to these types of stocks being rewarded."