Within the North America sector, last year’s winner was JPMorgan American (JAM ), which generated an underlying investment return of 24.7% in sterling terms, beating its S&P 500 index benchmark which gained 18.9%. Those figures would have been even better but for a weak dollar.

The turnaround in JAM’s performance in recent years has been impressive. In 2019 it adopted a new strategy whereby most of the portfolio was split between high-conviction large-cap value and large-cap growth stocks, run by two different fund managers, plus a smaller allocation to smaller companies.

JAM has benefited from having meaningful exposure within the growth part of the portfolio to the Magnificent Seven mega-cap tech stocks that soared on the back of the AI boom last year.

The line-up on the fund is about to change as growth manager Timothy Parton retires. The move has been well-flagged – the original announcement was made in summer 2022 – and incoming lead manager Felise Agranoff, who was made a co-portfolio manager in August 2022, has been working on the strategy for many years. It should be business as usual.

As the fifth anniversary of JAM’s strategy change approaches, the trust’s five-year performance is looking good, with annualised net asset value (NAV) returns of 16.9% and share price returns of 18.3% over that period, both ahead of the benchmark. It feels to me as though JAM is now a decent option for investors wanting core US exposure.

However, there is another contender, a stock that I own, Pershing Square Holdings (PSH ). Its five-year figures are much better than JAM’s with an average annual 28.3% return on net assets and 26.3% on the share price. A lot of that relates to the extraordinary $2.1bn (£1.66bn) derivatives trade that the manager pulled off during the Covid pandemic in 2020, but by no means all of it.

Fund manager Bill Ackman and his Pershing Square Capital Management (PSCM) team were in London last week for the fund’s annual investor meeting. On Thursday they announced a change to the way the firm’s performance fee is calculated, which should benefit PSH’s shareholders.

Part of the plan is to launch a US-domiciled closed-end fund, Pershing USA (PSUS), and the ambition is that this will be bigger than PSH. There will not be a performance fee on this fund but a percentage of the base management fees on PSUS will offset PSH’s performance fees.

PSH had a decent year in 2023, albeit coming in a little behind JAM with NAV returning 19.1% in sterling, but the share price returns doing better at 23%. That reflects some narrowing in the share price discount, but there is still a long way to go on that front with shares trading at a 27% discount today.

A key reason for the narrower discount has been an incredible commitment to share buybacks, with about $1.3bn, or more than a quarter of the investment company’s shares repurchased in the past seven years, about $205m of which occurred in 2023.

In a world where AI was garnering all the attention, the top two contributors to PSH’s returns over 2023 – Chipotle and Universal Music – were not in that camp.

Chipotle has been a position in the fund since early 2016. PSCM encouraged it to reshape its board, culminating in the appointment of a new chief executive in 2018. Since then, Chipotle’s share price has risen six-fold and Ackman thinks there is still plenty of potential for the business to grow.

Universal Music (UMG) had a good 2023, but again Ackman sees it as a long-term growth story. It has been hitting headlines because of its spat with TikTok. UMG says TikTok is not paying its fair share of royalties. UMG has pulled all the music that it controls from the platform to force it to the negotiating table. It seems likely that TikTok will cave, good news for UMG and the artists that it represents but not crucial to its performance as TikTok is only about 1% of UMG’s revenues currently.

The UMG position is probably a bit too large within PSH’s portfolio and, despite his conviction in it, Ackman feels that it would make sense to sell part of the holding to PSUS. PSH has a decent slug of cash available already so it seems likely that one or more new positions will be added to its portfolio this year.

One new holding in 2023, and the only one of the Magnificent Seven owned by PSH, is Alphabet. The opportunity arose because at the start of the excitement around AI, Alphabet was seen as losing the race to Microsoft and OpenAI, and PSH was able to buy a stake at about 15 times earnings (a discount to the market average) and then benefit as investors reassessed Alphabet’s AI potential, which PSH feels is market-leading.

There could be a chance to pick up a new position for PSH through its interest in Pershing Square Sparc Holdings (Sparc). Private companies securing a listing through special purpose acquisition companies (Spacs) were a fad for a while, but PSCM failed to get approval for its version of the structure, Pershing Square Tontine Holdings.

However, the authorities have approved Sparc and PSCM is looking for an appropriate company or division of a company to reverse into it. The target will have to fit the fund management firm’s core principles, which are focused around finding simple, predictable, cashflow generative businesses.

It is also worth bearing in mind that PSH often has exposure to various derivatives trades that the manager feels offer asymmetric returns – that is, not much downside but plenty of upside. Every now and then, one will pay off and provide a  boost to PSH’s returns. PSCM is also looking at launching a fund that will focus on these investments. Performance fees earned by this fund would also be offset against PSH’s performance fees.

The caveats to choosing PSH over JAM are that its portfolio is much more concentrated and nothing like the S&P 500. The fees – even if the performance fee trends to zero – are high, although it is worth emphasising that the returns quoted above are net of those. Maybe it is worth holding both!

James Carthew is head of research at QuotedData.

Any opinions expressed by Citywire, its staff or columnists do not constitute a personal recommendation to you to buy, sell, underwrite or subscribe for any particular investment and should not be relied upon when making (or refraining from making) any investment decisions. In particular, the information and opinions provided by Citywire do not take into account people’s personal circumstances.