Camille Van Vyve
25 Sep 2024
Stock market dinosaurs aren’t safe from a meteor. But your portfolio can be!
The top 10 largest companies in the world by market capitalization won't hold their positions forever. Leaders change over time as innovation and competition reshape market dynamics. But thanks to ETFs, your portfolio can stay in the game – and at a lower cost.
Predicting the future is impossible
The exclusive club of the 10 largest companies by market cap is ever-changing. Over time, companies enter and exit this list as markets evolve. Trying to predict which companies will dominate in the next decade is not only time-consuming but often inaccurate. However, there’s a simple investment strategy that can help you keep winning, regardless of market shifts.
Who’s in the club today?
Today, tech-heavy giants lead the pack, with Apple and Microsoft at the forefront. The "Magnificent Seven," including companies like Nvidia and TSMC, are dominating the market, thanks to the rise of technology and AI. But this global leadership constantly evolves. None of the companies topping the charts in 1980 are still in the top 10 today.
Every decade has its style
In 1980, energy companies led the way, driven by concerns about global reserves nearing their peak. By 1990, eight of the top 10 companies were Japanese, reflecting the belief that Japan would soon "take over the world." Fast forward to 2000, and the tech bubble was inflating, with companies like Microsoft and Intel on the list. By 2010, Chinese firms were dominating, and Apple made its first appearance. Since 2020, American tech companies have dominated the top five, with staggering market values.
Are the Magnificent Seven overvalued?
Are these colossal market caps a sign of a bubble? Not necessarily. Today’s dominant companies trade at much lower price-to-earnings (P/E) ratios than their predecessors. The average two-year P/E ratio for the Magnificent Seven stocks is "only" 23x, compared to 52x for market leaders in 2000, or 67x for the late 1980s leaders.
How to spot the next club members
This is the tricky part: it’s impossible to foresee shifts before they happen. Changes often arise from unexpected disruptions. For instance, the presumed dominance of Japan and China was derailed by economic collapses. And who could have predicted Elon Musk’s space ambitions?
Schumpeter and R&D
Nearly 100 years ago, economist Schumpeter argued that only giant companies had the resources to invest in R&D for new products and services, giving them a competitive edge to stay on top.
The limits of this theory
While Schumpeter’s theory explains the seemingly invincible position of Big Tech and the Magnificent Seven, history shows us otherwise. Their massive profits have enabled them to invest hundreds of billions in R&D, build infrastructure, and maintain their market dominance, pushing potential rivals away. But people once thought IBM and ExxonMobil were unassailable, and both have since lost their place at the top.
Innovation can change everything
Before ChatGPT fueled the AI craze, few saw Nvidia’s potential to join the $3 trillion market cap club. Similarly, pharmaceutical giants like Novo Nordisk and Eli Lilly were much smaller players before their wildly successful obesity treatments launched.
Index investing: keeping your portfolio up-to-date
One of the great advantages of index investing is that it allows for low-cost exposure to global market trends. As the market shifts, so does your portfolio—without you needing to lift a finger. ETF holdings adjust to reflect the size of companies in the benchmark index. If a company’s market cap grows, its share in the ETF increases, and vice versa. With Easyvest, your portfolio is invested in a global equity ETF and a eurozone bond ETF, providing optimized diversification and balance. Simulate your investment on our website and contact our wealth managers to discuss your options!