Comparing the Growth of Wealth for 10 Largest US Tech Stocks

The technology sector has performed extremely well in the past few years up until the end of 2020. However not all stocks within the sector have been winners. In order to have accumulated fabulous wealth with tech stocks it was necessary to be invested in the right stocks. For instance, an investor who owned tech giants IBM(IBM), Oracle (ORCL) or Cisco(CSCO) from Jan 2013 thru November would have earned average returns relative to the wealth generated by stocks like Amazon(AMZN), Microsoft(MSFT) or Apple(AAPL) in the same period. The following chart shows the stark difference in returns:

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Exhibit 3: Growth of wealth for 10 largest US technology stocks

Source: FANMAG: Because FAANGs are so yesterday, Ishan Ghosh PhD, Dimensional Fund Advisors via Firstlinks, Australia

From the above article:

Exhibit 3 shows the hypothetical growth of wealth for an investor who put $1 in each of the 10 largest technology stocks and the US market in January 2013. While the $1 invested in Amazon and Apple, for example, would have grown to $12.63 and $7.18, respectively, by November 2020, the returns of their non-FANMAG tech contemporaries would have failed to even surpass the US market.

While the performance of the above tech stocks have been great, large US firms have done even better in the past. Their contribution to the return of the overall US market was even higher than tech stocks like Microsoft and Apple. Below is another excerpt from the piece:

Large US companies have done even better in the past

A defining trait of the FANMAG performance is that these outsize returns have come from among the largest companies in the US, implying they were meaningful contributors to the overall US market’s return. However, historical data show that this too is nothing new.

Defining a stock’s return contribution as its total return weighted by its beginning-of-period market capitalization weight, we see that Apple’s contribution to the US market for the period 2013–2020 was 19.68%.

How does this figure compare to other top return contributors? Exhibit 5 illustrates the top return contribution and the annualized US market return over rolling eight-year periods since 1927, revealing instances of return contributions by the likes of AT&T, General Motors, and General Electric that were comparable to, or even exceeded, that of Apple in 2013–2020.

Exhibit 5: Key contributors

Oil major Exxon Mobil’s (XOM) glorious days lasted from 1999 to 2012 as shown in the chart above. Similarly Detroit auto maker General Motors(GM) was a top contributor to the market’s return in the 1940s and 50s. Nowadays it is more of an also-ran company making average cars. Few years ago the market even dubbed it the “Government Motors” when Uncle Sam had to bail them out from total collapse.

Disclosure: No Positions

The Case For Diversification Across Asset Classes: Chart

Diversification is one of the simplest way to achieve success with investing in the equity markets. Diversification works especially in the long run since different assets perform differently even during the same economic conditions. At a global level, emerging markets may have a great due to local and other factors while developed markets may underperform. So the key is to diversify one’s portfolio with many asset classes so one can benefit from the difference in returns.

The following chart shows the importance of diversification across asset classes thru 2020:

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Source: Russell Investments

US large caps stocks were the top performers in both 2019 and 2020 with double digit returns. In the 10 years ending in 2020 also, US large caps were the winners with a growth of 14%. However over a 20 year period Emerging market stocks outperformed American large company stocks.

With the exception of 2019 and 2020, no asset class was a consistent top performer year after year. Commodities were the worst performers both in the 20-year and 10-year periods ending in 2020.

Related ETFs:

  • SPDR S&P 500 ETF (SPY)
  • S&P MidCap 400 SPDR ETF (MDY)
  • SPDR S&P Dividend ETF (SDY)
  • iShares iBoxx $ Investment Grade Corporate Bond ETF (LQD)
  • Vanguard Total Bond Market ETF (BND)
  • Vanguard MSCI Emerging Markets ETF (VWO)
  • iShares MSCI Emerging Markets ETF (EEM)

Disclosure: No Positions

Chinese Oil Company CNOOC To Be Delisted by NYSE

The New York Stock Exchange (NYSE) has announced plans to delist Chinese oil major CNOOC (CEO) on March 9, 2021. This follows the delisting of three Chinese telecom firms in January. US investors may have to sell their shares before then or take other actions. CNOOC can appeal the NYSE’s decision. However whether that leads to prevent delisting is not clear. Below is an excerpt from a journal article:

The New York Stock Exchange said it would delist Cnooc Ltd. CEO -2.84% , the Chinese oil major, to comply with an executive order signed by former President Donald Trump targeting companies that the previous administration said had links to the Chinese military.

Trading in American depositary shares of Cnooc will be suspended at 4 a.m. ET on March 9, the NYSE said in a statement.

The Big Board’s regulatory arm determined that Cnooc was “no longer suitable for listing” in light of the executive order, which Mr. Trump signed in November. The order has remained in effect under the Biden administration.

Cnooc, one of the main Chinese state-controlled oil-and-gas producers, didn’t immediately respond to a request for comment.

The company will continue to have shares listed on the Hong Kong stock exchange even after the NYSE carries out its delisting. But U.S. investors who currently hold Cnooc’s NYSE-listed shares may have difficulty converting them into overseas shares, and many may choose to sell in the coming days. The NYSE-listed shares fell 2.8% Friday to $118.74.

Source: NYSE Moves to Delist Chinese Oil Company, WSJ, Feb 26, 2021

Holders of CEO can checkout the below articles for possible options available to recover their investment:

As of Friday’s close, Cnooc had a market cap of $53.1 billion and 446.5 million ADRs were outstanding.

Disclosure: No Positions

Is Investing At Market Tops A Wise Strategy?

The best time to invest in stocks is when blood is running on the street. Or to put it another way bear markets are great time to pick up quality names at cheap prices. While everything is falling day after day it takes courage to jump into the waters. While buying stocks when prices are low is a great strategy what about investing when prices are at their peaks. Putting cash into equity markets during peaks of bull markets is also not easy as there is always the fear of when stock would reverse course. Currently US equity markets are in a multi-year bull market. Many stocks at trading at their peaks and certain areas of the equity markets looks frothy. In the current market condition, companies with very low revenues and even tiny profits are worth billions. So does it make sense to buy stocks now?

According to an article by Scott Krauthamer at Alliance Bernstein, periodic investing at market peaks can also yield decent positive returns especially over the long run. From the piece:

High Valuations Don’t Always End in Disaster

For many investors, elevated valuations are an obstacle to deploying cash today—particularly in US stocks, which climbed to new record highs in early February. However, our research suggests that equities have delivered solid returns over time, even for investors who entered the market when stocks looked relatively expensive.

In fact, since 1950, the S&P 500 has been at or near record highs in 43% of all months (Display). And if you invested equal amounts at each market peak, US stocks would have delivered average annual returns of 9.6%. That’s 1.9% lower than the returns generated by investing at each bear market bottom, but a solid outcome over time, in our view.

Line chart shows of S and P 500 returns since 1950, with gray shading indicating the market has been at or near record highs 43% of the time.

High valuations don’t always end in disaster. But today’s valuations have been shaped by unusual market trends, adding concerns for investors. Rising price/earnings valuations of US stocks have been driven mostly by a surge in share prices, not by earnings growth. In other words, investors have pushed up share prices in anticipation that a global growth recovery will fuel a rebound in corporate earnings.

That’s a tall order. We believe earnings are unlikely to rise simultaneously across the market, given uncertainties about how countries will emerge from the pandemic, the pace of economic recovery and business challenges in many industries. So, investing in exchange- traded funds (ETFs) to gain passive, low-cost market exposure may not be the best way to redeploy cash to capture recovery potential.

Source: Cold Cash? How to Redeploy in Hot Markets, Alliance Bernstein

You may also the below related post:

Related ETF:

  • SPDR S&P 500 ETF (SPY)

Disclosure: No positions

The World’s Biggest Dividend Payers 2020

The world’s 1,200 largest firms by market capitalization paid out $1.26 Trillion in 2020 according to the Janus Henderson Global Dividend Index report recently. In the best case scenario Janus Henderson forecasts an increase of 5% in dividends this year. For the first time since 2015, the world’s top dividend payer was not a oil major but a tech company Microsoft(MSFT). Oil major fell from 1st in 2019 to 18th rank last year.

The World’s Biggest 20 Dividend Payers in 2020 is shown in the table below. Just these firms paid out a total nearly $199 billion in dividends.

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Source: Janus Henderson Global Dividend Index, Janus Henderson Investors

Disclosure: No positions