If the lesson some investors took from 2023 was that a firm focus on mega-cap3 technology companies is the easiest way to make money in the markets, the experience (perhaps forgotten) of 2022 is surely that a one-theme strategy is a high-risk one.
Introducing the Super Seven
No-one could deny 2023 generated challenging investment conditions, as have the years that preceded it. The decade so far has brought the pandemic, lockdowns, supply-chain disruption, war, rising interest rates, inflation and mounting geopolitical tensions.
As a result, some industries have been operating well above typical demand patterns. Others have been operating well below. In tandem, many of the usual cross-industry relationships have broken down.
In my view, this environment has clearly lent itself to individual stock selection. It has underlined the value of seeking out standalone opportunities rather than merely seizing on fashionable, broad-brush themes.
Crucially, this is likely to remain the case as patterns of demand, supply and consumption gradually reassume an air of familiarity. Even in relatively ‘normal’ times, the merits of diversification cannot be underestimated (as anyone holding just the Magnificent Seven in 2022 can testify).
We can illustrate this by looking at the top-performing stocks in the Invesco Select Trust Global Equity Income share portfolio. Rather than the Magnificent Seven, let's call ours the ‘Super Seven’ – as shown in figure 2.
We should begin by acknowledging the presence of Microsoft and Nvidia. This demonstrates we are rational rather than determinedly contrarian. We are not afraid to hold any company that looks attractive to us, even if everyone else seems to be holding it as well.
We are also not averse to other tech companies. We also held Besi and Broadcom, both of which are significant players in the semiconductor boom that is underpinning the spread of artificial intelligence. Ultimately, though, we are firm believers in casting our net more widely.
As you can see from our table, the Magnificent Seven averaged a return of 100% last year; our Super Seven delivered 102%.