Does history repeat? Or does it rhyme?
The U.S market has soared in the past few years, with emerging technology businesses doing quite well in the rally. It has no doubt raised opinions comparing the rally with that of 1999. For those too young to remember, the 1999 rally did not end particularly well.
Source: Koyfin
Having said that, while we see are parallels to 1999, we also see compelling counter-narratives.
Comparing the two periods, the uncanny similarity in the stock charts stands out. However, the fundamental difference lies in the fact that most top-performing companies in the past decade are proper businesses generating oodles of cash flow, earning billions in profits, and growing their revenues at a fair clip. The bulk of the dot com era companies were just ideas that rode the wave without ever earning a penny in profits.
The difference also lies in how the valuation ratios are eyed. The markets look expensive based on trailing earnings, but not so much when using estimated earnings. On Jan 1, 1999, the S&P 500 index had a forward P/E ratio of 24, while it stands at 22 now. This P/E measures the index's price divided by the estimate for earnings for the next twelve months.
Another popular measure for growth stocks is the PEG ratio, which measures the price per unit of growth, in essence giving a sense of how much one is paying given the expected growth in EPS. It stood at 26 in 1999 compared to 21 now.
Source: S&P
In conclusion, it is possible to form opinions on either side of the narrative.
"There is only one side to the stock market; and it is not the bull side or the bear side, but the right side." - Jesse Livermore
Long journeys need planning, and a good navigator
Investors with a long-term view of the market should be cognizant of the market's cyclical nature and focus on things that are within their control. Timing the market is the holy grail of investing, and many great minds have failed to master that. On the other hand, long-term success has been achieved by investors who follow a strategy consistently and invest with a long-term view of the market. What the Oracle of Omaha achieved with Berkshire Hathaway is a shining example.
Every investor can't access sophisticated tools that measure correlations, backtest data, and form long-term opinions on securities based on them.
The Globalise curated portfolios aim towards bridging this gap. We at Globalise prioritize our research to focus on products that offer the potential to grow investor wealth across market cycles without trying to time entry and exits.
Curated portfolios for the new era
The world we inhabit is quite different from even 15 years ago. Lightning-fast broadband, connected devices, smart homes, self-driving capabilities in vehicles, same-day delivery of eCommerce purchases, seamless videoconferencing, food delivery from the restaurant of choice, and ride-sharing, to name a few, were unimaginable just over a decade ago. Imagine the plight of the world if the Covid pandemic had struck 20 years ago! Thanks to the technology-assisted work from home, a service-driven major country like the U.S did not suffer a devastating blow to its economy or GDP growth rates.
Almost all of us admire and are in awe of these technological breakthroughs. But, very few participate in the growth by investing in these companies. An individual investor must dig through mountains of data to find out the companies behind the screen and find ways to invest in them.
Now with the click of a button, an investor can hop on to this train and become a participant in the sector's growth.
One such avenue is the Future Innovation Globe, which offers a passage into this enticing theme.
The Globe is created by amalgamating a diverse set of ETFs that offer exposure to specific underlying themes, which, when put together, cover the broad spectrum of innovative companies.
The key themes that make up this curated portfolio are Fintech, Autonomous driving and EV, Robotics and artificial intelligence, Video gaming and Esports, Consumer businesses that cater to the millennials, Cloud computing, and social media. Each underlying security is selected after thorough analysis and rigorous back testing and finally by optimization of the weight allocation.
Fintech is revolutionizing global finance, EVs are set to become mainstream within the next decade, autonomous driving is already making inroads. Videogaming is now almost as big a business as certain traditional sports, and cloud computing is ubiquitous. Social media is becoming an indispensable part of life.
Source: Globalise
Companies that think outside the box
Some of the unique companies that form the basis of the portfolio include:
Sea Limited (SE)
The Singapore based Sea Ltd is an internet company with digital entertainment, eCommerce, and digital financial services businesses. Sea operates one of the largest ecommerce companies in southeast Asia. Its video gaming business is available in over 130 markets. It is also the largest digital payment company in the region.
Source: Morningstar.
Square Inc (SQ)
The California based Square is a leading digital payments company in the U.S. The company also operates in Canada, Japan, and the U.K.
Source: Morningstar
NVIDIA Corporation (NVDA)
A leading manufacturer of graphic processing units, NVIDIA is the force behind the growth of the gaming industry. It is also one of the largest players in the semiconductor industry.
Source: Morningstar
Snap Inc (SNAP)
Snap is famous for its Snapchat social media application. The firm is also the developer of spectacles that are equipped with special cameras that incorporates augmented reality.
Source: Morningstar
Activision Blizzard, Inc (ATVI)
This gaming company is behind some of the top selling videogames including Call of Duty, Guitar hero, World of Warcraft, Crash Bandicoot and Candy Crush saga.
Source: Morningstar
Peering into the data
Investing outside the country is a trend that has been accelerating in recent times. As Indian investors seek to diversify their portfolios and garner exposure to the myriad opportunities available in a market like the U.S., more and more of them seek avenues to foster this aim. Two pieces of data from the Globalise platform throw additional light on this trend. States such as Maharashtra and Tamil Nadu are more industrialized than the rest of the country and typically are home to a population with discretionary income. Along with the national capital region of Delhi and the country's IT centre Karnataka, these four accounts for a large proportion of the customers.
India, as we know, is one of the youngest countries in the world in terms of the average age of the population. We are also home to a small but growing section of young, aspirational class of citizens aware of the wealth-building potential of investing in the markets. Mirroring the demographics of our country itself, the younger age groups account for over 60% of the customers on the Globalise platform.
We saw the usual suspects rank among the most popular stocks on the platform in terms of stocks. As the U.S indices such as the S&P 500 and Nasdaq Composite continue to post new highs, FAANG stocks continue to catch the fancies of investors. Here are the top 5 most popular stocks on Globalise for the first half 2021.
- Apple, Inc (AAPL)
- Alphabet Inc.- Class A shares (GOOGL)
- Facebook, Inc (FB)
- Amazon.com, Inc (AMZN)
- Microsoft Corporation (MSFT)
ETFs are popular vehicles in general, for they offer a simple way of investing in a basket of securities. Just like in the stocks, the growth-oriented technology sector seems to be the most popular among investors. However, trends like clean energy are catching up among investors, evidenced by the most popular ETFs on the Globalise platform during the first half of 2021.
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