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Nestlé headquarters in Vevey, Switzerland, photographed in February 2019.
London
CNN
—
The Magnificent 7 Tech stocks have contributed significantly to the extraordinary rally in the U.S. market. But there’s a rival group of companies that has delivered even better returns by some measures, pushing European stocks to new heights.
These 11 companies, known as “granola”, accounted for 60% of the gains in the European benchmark stock index over the past 12 months. Over the long term, the company has slightly outperformed the Magnificent 7, according to Goldman Sachs.
“Granolas” is an acronym created by the bank in 2020 to represent Europe’s largest companies by market capitalization at the time, including GSK, Roche, ASML, Nestlé, Novartis, Novo Nordisk, L’Oréal, LVMH and Astra. Comprised of Zeneca, SAP, and Sanofi.
“These factors are a big part of why European stocks are performing well despite lackluster gross domestic product,” Goldman Sachs analysts said in a note earlier this month. ”, highlighting the significant rise in European stocks. They praised both companies’ “strong revenue growth, low volatility, high (and) stable profit margins, and strong balance sheets.”
Goldman Sachs analyst Guillaume Jesson told CNN on Tuesday that Granolas investors have averaged a 65% total return over the past three years, including stock appreciation and dividends, compared to Magnifi. This is slightly higher than Cent7’s 64%.
In his calculations, Jaison adjusted each stock’s performance to reflect its weight in the Stoxx Europe 600 or S&P 500 indexes based on market capitalization.
Granola is a diverse product that spans healthcare, technology, food, and luxury goods sectors. In contrast to all seven Magnificent tech companies listed in the United States, these companies are listed across France, Germany, Denmark, Switzerland, the Netherlands, and the United Kingdom.
Granolas’ shares have risen on an unweighted average of nearly 18% over the past 12 months, more than double the pan-European index’s 7.3% rise, according to CNN calculations. The top performer is Danish pharmaceutical company Novo Nordisk, whose stock has soared 65% over the past year thanks to a blockbuster weight loss drug. Ozempic and Wigoby.
Goldman Sachs expects granola to account for “nearly all” of the overall revenue growth for companies in its pan-European index over the next few years.
But granola’s success could be a double-edged sword for the European market.
Their outstanding performance “raised the question of concentration effects” in the region’s stock markets, said Philip Lawler, managing director of market research at Wilshire Index.
In other words, investors, many of whom invest passively through exchange-traded funds, will continue to funnel money to the 11 largest companies at the expense of smaller companies, he told CNN. He noted that passive investment vehicles often allocate large amounts of money to stocks that dominate the index they track.
Granola accounts for 20% Of the total value of all 600 companies in the Stoxx Europe benchmark, the Magnificent 7 accounts for almost 30% of the S&P 500’s value.
“As more and more money is being sucked into the market through passive means, more and more money is being sucked into large-cap stocks,” Lawler said, adding that Granolas’ success is thus “self-fulfilling.” He added that it would be a “prophecy that something will happen.”
Goldman Sachs also acknowledged in a note earlier this month that Granolas stands to “benefit from a structural shift toward passive investing.”
The S&P 500 has seen similar concentration, with tech stocks seeing an unprecedented rally driven by investor excitement about artificial intelligence. exceed It controls the rest of the market by a wide margin.
The index is up more than 6% since the beginning of the year, but when all constituents are weighted equally, the benchmark is up just 2.3%.
Last year, the S&P 500 index rose 24.2%, while its equal-weighted version rose only 11.6%. “This was the first time since 1998 that the S&P 500 outperformed an equally weighted index by more than 10 percentage points,” Deutsche Bank analysts said in a note.
