After presidential election, shares of domestically focused American companies had surged in anticipation of fast economic growth in the US and a strong dollar while multinational stocks lagged. The situation of reversed this year.
Per NYT, 113 companies in the S&P 500 index that derive at least 50% of their sales outside the US, gained an average 13.56% from election through May 19, handily beating the 8.15% gain for 161 S&P 500 companies that make at least 90% of their sales within the US. (Read: 4 Outperforming ETFs for Japan Exposure?)
This gap would be even larger if they had used market cap weighted and not equal weighted performance numbers in the calculations, because of outsized impact of tech titans like Apple (AAPL – Free Report) , Google-Alphabet (GOOGL – Free Report) and Microsoft (MSFT – Free Report) .
Per FactSet, S&P 500 companies that generate more than 50% of sales inside the US, reported blended sales growth rate of 7.1% for Q1, while for companies that generate less than 50% of sales inside the US, the blended sales growth rate was 9.4%
As the global economy becomes more integrated and deregulated, one might expect more competition but the truth is that the leading companies in the world are becoming bigger and better. Per FT, these companies are “very good at what they do. Competition isn’t a threat to them. It’s an opportunity.” (Read: India ETFs—More Run Ahead?)
According to a working paper“The Fall of the Labor Share and the Rise of Superstar Firms”, industries have become more concentrated on average. Second, the trend is much stronger when measuring concentration in sales rather than employment.This suggests that largest companies are gaining market shares with relatively few workers. This results in improving profit margins for blue-chip companies, quarter after quarter.
Below are some ETFs that investors could consider to benefit from this trend.
MGK provides a convenient way to get diversified exposure to the largest growth stocks in the US. It has $2.9 billion in AUM, currently invested in 142 stocks. Apple, Alphabet, Amazon, Facebook (FB – Free Report) and Home Depot (HD) are the top five holdings.
The product charges just 7 basis points in expenses. (Read: Best ETF Strategies for Trump Uncertainty)
The ETF is up about 15% this year.
PXLG holds 77 large cap stocks with strong growth characteristics selected from the Russell Top 200 Index. The index tracks largest 200 companies in the Russell 3000.
Holdings in the ETF are weighted based on their style score. Top five holdings are Netflix (NFLX – Free Report) , Priceline (PCLN – Free Report) , Tesla (TSLA – Free Report) , Amazon (AMZN – Free Report) and MasterCard (MA) currently. The product is well diversified with the top holding accounting for just about 3.5% of assets.
Consumer Discretionary stocks have the highest allocation in the ETF at 30%, followed by Information Technology at 27%.
This product provides exposure to 100 mega-cap multinational companies.
About 60% of the assets are invested in the US companies and about 38% in other developed countries. South Korea—considered an emerging market by some index providers—also gets a small allocation of about 2%.
IOO has an expense ratio of 40 basis points. It is up more than 11% this year.
European stocks are outperforming US stocks this year as the economic growth in the region gains momentum and political risks have declined.
FEZ provides access to 50 of the largest Euro-zone companies. France and Germany together account for almost 70% of total fund assets. Looking at sector allocation, Financials, Industrials and Consumer Discretionary occupy the top spots.
Total SA, Siemens AG and Sanofi are top three holdings. The ETF is up more than 18% this year.
The Vanguard Mega Cap Growth ETF (NYSE:MGK) was trading at $100.77 per share on Wednesday morning, down $0.1 (-0.10%). Year-to-date, MGK has gained 15.68%, versus a 7.91% rise in the benchmark S&P 500 index during the same period.
This article is brought to you courtesy of Zacks Research.