During the decade that ended at the start of 2020, the FTSE 100 index grew by 41.5%. During the same period, the NASDAQ 100 was up 372%. The US index was significantly buoyed by the rise of the ‘FAANG’ technology stocks – Facebook, Amazon, Apple, Netflix and Alphabet – as technology became omnipresent in everyday life.
Such are the high earnings multiple and exponential growth of the FAANGs that they have caused a distortion in the US markets. In the US, the S&P index is trading at x20 earnings and yielding 1.5% according to Bloomberg. This compares with the UK’s FTSE 100 at x12.8 earnings and a yield of 3.2%. The emergence of these stocks is indicative of the huge new opportunities within the world’s stock market’s as disruptive technologies create opportunities for investors to grow their investment at unprecedented speed.
Contrarian opportunities are also becoming more pronounced as changes in relative values and sentiment causes investors to rotate between value and growth stocks more quickly. Exxon was number one in the S&P index in 2013 and is 28th today. IBM was number one in 1985 and is 67th today. GE was number one in 2000 but is 73rd today by market value. The velocity of change is accelerating, and the challenge is to create an optimal portfolio.