HOW DO ‘SUPER’ STOCKS TURBO CHARGE THE STOCK MARKET?

03.12.2020 Recent research has highlighted that stock market wealth creation is turbo charged by a small group of ‘super’ stocks that produce outsized positive multi-period returns. What implications does this have for equity portfolios?

Professor Bessembinder, Professor of Finance at Arizona State University, analysed the performance of 26,000 US stocks from 1926 to 2016. His findings gave much food for thought as he found that just 4% of the sample companies were responsible for the entire wealth created over the period. In a follow up study, on global stock market returns between 1990 and 2018, he found that less than 1% of the 62,000 equities in the sample created 100 percent of the returns. In this instance just four ‘super’ stocks were collectively responsible for 8% of shareholder wealth globally.

It is interesting to consider the characteristics of these ‘super’ stocks. Professor Bessembinder found that the majority had founders with ‘big dreams’, had access to large markets which were often global, had barriers to entry and once established paid regular, and increasing, dividends.

When constructing portfolios for our clients we aim to identify UK ‘super’ stocks by looking for companies which have exposure to growth markets, high barriers to entry, a clear strategy and a strong management team. We then aim to hold them over a number of years. To gain exposure to global ‘super’ stocks we use international funds and investment trusts. For a longer article on this topic please see the Investment Insights section of the website. Please see the Growth strategy fact sheet, accessed via the Growth Strategy case study (also in the Investment Insights section), for the returns generated by our equity portfolios.

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This post was written by Robin