Investment

S&P 10 or S&P 500?

by Pierre Mouton

S&P 10 or S&P 500?

This year, 10 tech stocks accounted for 100% of the S&P500’s performance. Should we be worried?

The US equity market is particularly polarised in the first half of 2023. In fact, the contribution of just 5 companies (Apple, Microsoft, Nvidia, Alphabet and Amazon) out of the 500 that make up the S&P 500 accounts for 77% of the index’s performance. Add Meta, Tesla, Broadcom, AMD and Salesforce and you get 100% of the performance of the world’s largest index. This means that 490 stocks will have been ‘worthless’ so far this year.

What these ten companies have in common is obvious: they all belong, in one way or another, to the technology sector or, more broadly, to the themes of digitalisation and artificial intelligence. While digitisation has been a major performance driver for almost 10 years now, the artificial intelligence craze has given it a considerable boost, notably with the increasingly widespread use of the famous ChatGPT.

PROGRESS IS MORE WIDESPREAD IN EUROPE

By way of comparison, the 10 biggest contributors to the performance of the Stoxx 600 in Europe account for only around a third of the index’s advance at this stage, and belong to sectors as diverse as luxury goods, pharmaceuticals, commodities, technology and consumer staples. This seems much healthier, even if part of the explanation for this eclecticism in Europe is to be found in the absence of information technology mega-caps on the Old Continent.

So is this narrowness of the US market (and of the global indices, which are largely made up of the aforementioned US stars) a bad omen that we should be worried about? Yes and no.

THE MARKET CANNOT DEPEND ON A SINGLE SECTOR

Yes, because, to paraphrase a military adage, defeat is certain if the generals advance and the troops do not follow. There is a clear risk here that the enthusiasm surrounding these great leaders will run out of steam, or that their valuations will simply become too demanding, leaving the market short of leadership and at the mercy of erratic fluctuations linked to interest rates, the economic climate or commodity prices. A single sector or theme cannot be the sole sustainable source of performance in indices as broad as the S&P 500 or the MSCI World.

A VERY DIFFERENT SITUATION FROM THE INTERNET BUBBLE

No, because stock market history shows us that this type of situation is nothing new: it has frequently happened in the past that a handful of stocks have taken the whole market with them, without the market subsequently collapsing. What’s more, the major leaders we’re talking about today are formidable profit and cash flow machines. The comparison with the dotcom bubble of 2000 is therefore inappropriate, since at that time the profitability of the best-performing companies was low, if not non-existent. Finally, the economic reality behind the themes of digitalisation and artificial intelligence is more than clear: the related investment cycles are gigantic and far from over.

In conclusion, we will need to keep a close eye on the behaviour of the ‘rest’ of the market over the coming weeks and months. If the underperformance of the laggards increases, we will have to be very careful, as the market would then find itself overly dependent, and therefore dangerous, on a small number of companies. If, on the other hand, participation in the performance of the indices becomes more widespread, then this would confirm the good health of the market and provide an excellent reason to be very optimistic about equity investment.

 

 

 

Past performance is not indicative of future results. The views, strategies and financial instruments described in this document may not be suitable for all investors. Opinions expressed are current opinions as of the date(s) appearing in this material only. References to market or composite indices, benchmarks or other measures of relative market performance over a specified period of time are provided for your information only. NS Partners provides no warranty and makes no representation of any kind whatsoever regarding the accuracy and completeness of any data, including financial market data, quotes, research notes or other financial instruments referred to in this document. This document does not constitute an offer or solicitation to any person in any jurisdiction in which such offer or solicitation is not authorized or to any person to whom it would be unlawful to make such offer or solicitation. Any reference in this document to specific securities and issuers are for illustrative purposes only, and should not be interpreted as recommendations to purchase or sell those securities. References in this document to investment funds that have not been registered with the Finma cannot be distributed in or from Switzerland except to certain categories of eligible investors. Some of the entities of the NS Partners group or its clients may hold a position in the financial instruments of any issuer discussed herein, or act as advisor to any such issuer. Additional information is available on request.

© NS Partners Group

Article tagged by

Return to listing

Related articles you might like

Investment

Chart of the Month – Are you familiar with the name Sam Brannan?

by Pierre Mouton
Investment

Germania: tra crisi industriale e incertezza politica

by Giacomo Calef
Investment

November General Market Comments

by Pierre Mouton
back to
the top
Antonio Mira
CHIEF FINANCIAL OFFICER, MEMBER OF THE EXECUTIVE COMMITTEE

Antonio Mira joined NS Partners in 2006 as Group Chief Financial Officer. He heads the corporate functions and is involved in coordinating and implementing the decisions of the Executive Committee.
An experienced bank auditor, Antonio started his career in 1995 with Arthur Andersen, where he worked for some 7 years before joining Ernst & Young in 2002 as a Senior Manager.
Antonio is a Swiss chartered accountant and a Business graduate of Lausanne University (HEC).

The challenge is to have the right agenda to orient the business, its transformation and the appropriate use of data.

Sébastien Poiret
DEPUTY HEAD OF WEALTH MANAGEMENT

Sébastien Poiret joined NS Partners in 2008 and manages funds of hedge funds and private client mandates. He also oversees the development of the Group’s offices in Mauritius.

Prior to joining NS Partners, he served as a Trader, Head of Manager research and Portfolio Manager in the USA and Switzerland for a single hedge fund (1998-2004) and for Optimal (2004-2008), Grupo Santander’s fund-of-hedge funds operations.

Sébastien holds a Bachelor’s degree in Corporate Finance from the ESPEME Business School (EDHEC Group) and an MBA in Finance and Economics from the Institute of Business Administration, both in Nice.

It’s all about finding the right balance between making money, capital preservation and liquidity.

Abir Oreibi
BOARD DIRECTOR

Abir Oreibi joined the Board of the NS Partners Group in 2018, where she brings her truly international perspective and rich experience.
Among many other ventures, Abir set up Alibaba.com’s first European office. After living and working in Shanghai, Hong Kong, Bangkok and London, she now lives in Geneva, where she is CEO of Lift Events, an organization that identifies technology trends, their business and social impact through the organization of events and open innovation programs. Issues related to the challenges and opportunities created by new technologies as well as the strategic responses from organizations are at the heart of Lift’s activities.
Abir holds a BA in Political Sciences from the University of Geneva. She is an investor, and member of advisory and innovation boards.

Nothing great is created by following the herd. Whoever has heard of Alexander the Average?

Romain Pidoux, CAIA

Add Your Heading Text Here

Romain Pidoux joined NS Partners in 2011 and heads the Group’s Risk Management.
He started his financial career in 2005 as Head of Quantitative Analysis for a Swiss Family Office, selecting funds and managing portfolio allocation. In 2008, he switched to the alternative world and joined Peak Partners as hedge funds analyst.
He is a Chartered Alternative Investment Analyst (CAIA) and holds a Master’s degree in international relations from the Graduate Institute of International Studies at Geneva University.

If you want peace, prepare for war. The same goes with risk management.

OUR FUND SERVICES Fund Engineering & Set Up

We coordinate your fund project from end to end and assist you through all the legal, administrative, regulatory and operational steps required to launch a Luxembourg investment fund.

We assist you with constitutive documents drafting (articles of incorporation and prospectus), the investment management, advisory and distribution agreements, the central administration, custodian bank and domiciliation service agreements, the risk management process, as well as the internal investment guidelines. We organise the operational setup and help you select all the providers and partners you need.

We advise you, file the constitutive documents of your fund and liaise with Luxembourg authorities (CSSF) until approval.

INTERESTED ABOUT OUR FUND ENGINEERING & SETUP SERVICES?

contact ns partners

INTERESTED ABOUT OUR FUND ENGINEERING & SETUP SERVICES?

contact ns partners
OUR FUND SERVICES Distribution support & Fund registration

The marketing of your fund is an essential factor of your success. Yet, distributing funds, both within and beyond Europe, can be a daunting task for investment managers, who struggle to meet their various reporting requirements.

Our seasoned and multi-lingual team masters the intricacies of European regulatory constraints and acts as a single point of contact with the various service providers.

Thanks to our total independence and close relationships with service providers, we offer impartial advice and help you obtain competitive prices. Naturally, our service is tailored to your specific distribution requirements.

We also assist you in devising and implementing your distribution strategy and introduce you to our network of distribution specialists in Europe.

INTERESTED ABOUT OUR Distribution support & Fund registration?

contact ns partners

INTERESTED ABOUT OUR Distribution support & Fund registration?

contact ns partners
OUR FUND SERVICES Independent Directorship

Under new UCITS V and AIFMD directives, the role of the Independent Director has become more important and is now considered a profession in its own right.

Indeed, your fund’s Board should ensure that high standards of corporate governance are applied at all times and have a good professional standing, appropriate experience, act fairly and independently in investors’ best interests and operate with due care and diligence in the performance of their duties. Additionally, the Board should ensure compliance with all applicable laws, regulations and with the fund’s constitutional documents.

Our panel of independent directors are all seasoned fund professionals with over 20 years’ experience in the asset management industry. They also cover a wide range of professional skills and backgrounds, including administration, regulatory, operations, legal, tax, portfolio management and risk management functions.

INTERESTED ABOUT OUR Independent directorship?

contact ns partners

INTERESTED ABOUT OUR Independent directorship?

contact ns partners
OUR FUND SERVICES Risk Management & Compliance

Risk management is in our DNA.

We provide you with an integrated risk and investment compliance management service. Being an integral part of our IT infrastructure, our risk systems guarantee an effective assessment and management of financial risks. They include a full range of risk indicators adapted to the risk profile, the asset class, as well as each fund’s investment strategy.

Based on the best market practices and compliant with ALFI and ESMA guidelines, our risk management services include:

  • Appraisal and monitoring of portfolio risk
  • Regulatory risk and investment compliance (including asset eligibility)
  • Periodic monitoring of asset evolution for UCITS and AIF vehicles
  • Independent NAV supervision
  • Production of customized risk management reports
  • Historical VaR, parametric VaR and Montecarlo simulation

INTERESTED ABOUT OUR Risk Management & Compliance?

contact ns partners

INTERESTED ABOUT OUR Risk Management & Compliance?

contact ns partners
OUR FUND SERVICES Investment Management

Thanks to our 55 years’ experience in managing conventional and alternative investment funds, we have acquired a unique expertise in asset management.

And because we focus on multi-manager funds, we have developed a strong and disciplined manager selection process that allows us to find and monitor the best Investment Managers if needed.

INTERESTED ABOUT OUR Investment Management?

contact ns partners

INTERESTED ABOUT OUR Investment Management?

contact ns partners
Your browser is not supported. Please use another browser.