The Longest ‘Long’ of All-Time

The broad market indices are providing ever increasing concentration and valuation risk. While the music keeps playing and, in fact, appears to be getting louder, people will keep dancing. But that doesn’t mean that the danger is not increasing. As of 10th January 2020, before the coronavirus was seriously troubling western markets, the FAAMG group (Facebook, Apple, Amazon, Microsoft, Google) made up 17.4% of the total market capitalisation of the S&P 500 index [1]. This level of market concentration was already equivalent to the market concentration just prior to the dotcom crash in 2000. Since then, the market fortunes of the mega five have improved further, so that they now make up 21.7% of the S&P 500 [2]. Their market share has increased by 25% in the first six months of this year. While this is striking in itself, consider that the market share of these giants, as at 31st March, 2017, was 13% [3]. The market share of the big 5 has increased by 67% in just over three years.

Top 5 Mega Tech Companies

While this has caused us no end of consternation over the past 3 years, as we haven’t owned them, it fills us with excitement for the next 5 years, because we don’t own them. For the past 25 years, Bank of America has surveyed fund managers about how they are positioning portfolios. The latest survey found that nearly three-quarters of fund managers agreed that holding big U.S. tech stocks was the “most crowded” trade in the market, the survey’s strongest ever consensus.

“Buying tech stocks is now the “longest ‘long’ of all-time” [4]

Many passive index investors (or investors in benchmark focused funds) do not fully realise how much their fortunes rest on the fortunes of these five companies.

There is no question that these are admirable companies with strong growth prospects, but they are not undiscovered, and they do not come without risks, including valuation. The big 5 have seen their market capitalisation increase by 50%, on average, over the past ~12 months [5] while their consensus expected earnings for fiscal 2021 have fallen, on average, by 2% over the same period.

Top 5 Mega Tech Companies Market Cap

These companies have done a remarkable job of lifting the index over the past five years, indeed, over the past ten years since the GFC, but it strikes us as optimistic to think they can do the same job over the next five years from their current lofty perch. For these companies to increase in value by 10% per annum for the next five years they would have to add an incremental US$4 trillion to their combined market capitalisation by 2025 [6]. This is the equivalent of adding the entire current market capitalisation of the next thirteen companies in the S&P 500 today. In other words, adding another Berkshire Hathaway, Visa, Johnson & Johnson, Wal-Mart, Proctor & Gamble, Mastercard, JP Morgan, United Health, Home Depot, Nvidia, Intel, Netflix and Verizon. Alternatively, you could add the bottom 288 companies in the S&P 500 to make up the same US$4 trillion. Not impossible, but also not a slam dunk. We prefer to look elsewhere for opportunities and, in doing so, provide valuable diversification for our investors, including ourselves.

[5] 30 June 2019 to 4 August 2020.
[6] Avenir Analysis



This material has been prepared by Avenir Capital Pty Limited (ABN 40 150 790 355, AFSL 405469) (Avenir) the investment manager of Avenir Global Fund (Fund). Fidante Partners Limited ABN 94 002 835 592 AFSL 234668 (Fidante), is the responsible entity of the Fund. Other than information which is identified as sourced from Fidante in relation to the Fund(s), Fidante is not responsible for the information in this material, including any statements of opinion. It is general information only and is not intended to provide you with financial advice or take into account your objectives, financial situation or needs. You should consider, with a financial adviser, whether the information is suitable for your circumstances. To the extent permitted by law, no liability is accepted for any loss or damage as a result of any reliance on this information. The PDS for the Fund, issued by Fidante, should be considered before deciding whether to acquire or hold units in the Fund. The PDS can be obtained by calling 13 51 53 or visiting Neither Fidante nor any of its respective related bodies corporate guarantees the performance of the Fund, any particular rate of return or return of capital. Past performance is not a reliable indicator of future performance. Any projections are based on assumptions which we believe are reasonable, but are subject to change and should not be relied upon. Avenir and Fidante have entered into arrangements in connection with the distribution and administration of financial products to which this material relates. In connection with those arrangements, Avenir and Fidante may receive remuneration or other benefits in respect of financial services provided by the parties.


Written by Adrian Warner

Chief Investment Officer

Adrian Warner is the Managing Director and Chief Investment Officer of Avenir Capital and is responsible for the portfolio management of the Avenir Global Fund. Prior to founding Avenir Capital, Adrian worked in private equity investment in Australia, Asia and the United States with an investment record spanning over 20 years.