We are far behind our counterparts in the US. The S&P 500 is up almost 9% year-to-date. The ASX 200 is just keeping its head above water.
The five largest stocks on the S&P 500 — Apple Inc. [NASDAQ:APPL], Alphabet Inc. [NASDAQ:GOOGL], Microsoft Corp. [NASDAQ:MSFT], Amazon.com, Inc. [NASDAQ:AMZN] and Facebook Inc. [NASDAQ:FB] — have posted wonderful returns.
Take a look at the graph below.
Throughout 2017, the big five have climbed up without any trouble. Had you bought all five at the start of this year, you definitely wouldn’t be disappointed.
Your average return for the year would have been more than 26%. Amazon and Facebook were the best performers, both climbing more than 30% year-to-date.
But could they soar even higher from here?
According to Evans and Partners new global disruption fund, they could. As reported by the Australian Financial Review:
‘Evans & Partners senior research analyst Raymond Tong, a former analyst with Goldman Sachs, said that despite the multi-year run in the big five US tech stocks that the fundamentals looked good and the growth outlook remained strong.
‘“Google is trading on a price to earnings ratio of 22 times and has consensus growth forecasts of around 20 per cent. Compare that to REA Group at 29 times or Carsales at 21 with forecast growth of 10 per cent,” Mr Tong said.’
Yet, I would be skeptical of future growth. It’s not that I think the big five won’t grow. It’s that they may not grow as fast as investors expect. The market tends to exaggerate growth. And as a result, stock prices are bid up too high.
Instead I suggest you use the advantage you have — investing in small stocks with low valuations. These companies haven’t been bid up by the million dollar funds, because they are limited by their own enormous size. That means that retail investors like you can find opportunities the big players can’t touch.
It’s in the smaller end of the market that you have a chance to outperform big institutional investors. Not in the S&P 500’s five biggest companies.
Junior Analyst, Markets & Money
PS: If you’re interested in investing in smaller growth stocks, check out Sam Volkering’s new report, ‘Top Three Aussie Small-Cap Stocks’.
Sam is a small-cap guru. He’s managed to find growth in a market where many investment professionals simply can’t find any.
To get your free copy of Sam’s report, click here.