Invest In Superstar Stocks With These ETFs
Zacks Investment Research | May 30, 2017 02:53AM ET
Large multinational companies, particularly tech giants, have been on a tear this year, as the global economic picture continues to brighten. Due to their high global revenue exposure, these companies are poised to prosper with the improving global economy.
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.
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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 (MSFT ).
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 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.
Vanguard Mega Cap Growth ETF(MGK )
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 (NASDAQ:GOOGL), Amazon, Facebook (NASDAQ:FB) (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.
PowerShares Russell Top 200 Pure Growth Portfolio(PXLG )
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.
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Holdings in the ETF are weighted based on their style score. Top five holdings are Netflix (NASDAQ:NFLX) (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%.
iShares Global 100 ETF (IOO )
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.
SPDR Euro STOXX 50 ETF (FEZ )
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 (PA:TOTF), Siemens AG (DE:SIEGn) and Sanofi (PA:SASY) are top three holdings. The ETF is up more than 18% this year.
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