Investment Newsletter - November 2023

Good Morning,

As Christmas quickly approaches, we are excited to bring our last investment newsletter for the year!

You may wonder why here in New Zealand we focus so much to what happens to shares in the United States. It is because the share market in the US has the most valuable companies in the world, which drove much of the growth around the world.

The performance of the US share market in the past year can be described as “focused”, as there has been a relatively small number of shares driving the market higher.

The so-called “Magnificent Seven”, a group of seven big technology companies, comprised of Apple, Microsoft, Alphabet, Amazon, Nvidia, Meta Platforms and Tesla, has made the S&P 500 more concentrated than ever, representing over 25% of the value in the top 500 shares in the US.

The average return of these seven companies this year is a gain of 109% (as of Nov 22, 2023), resulting in a 19% return for the S&P 500 index. This comes as a much-needed positive outlook after

However, this high concentration in a few companies is a legitimate concern for investors because if these shares were to fall, the index would fall as well. Albeit the other parts of the index may make up for some of the losses.

But has this high concentration always been the case?

Hendrik Bessembinder, a professor at Arizona State University, conducted research into whether shares outperform Treasury bills (Treasury bills being very short-term government debt). His study found that over a period of 90 years, the return on shares is more concentrated on one side than the other.

Point x represents 0% return. Anything to the left is negative returns and anything to the right is positive returns. In the diagram above, you can see that there are fewer data points that land on the right-hand side of point x.

The findings show that the returns from long-term share investing are positively skewed, indicating that there are observations on one of the extreme ends of the distribution of returns. This means that a few shares with outsized returns pull up the average return of the market. Bessembinder also found that over the 90-year period from 1926 to 2017, just 86 shares accounted for over half of the wealth creation in the US share market.

The key takeaway from this research is the need for diversification since no one knows what the next big winner will be.

So, what does this tell us about the Magnificent Seven shares and what does it mean for you?

Outsized gains are normal.

Other shares will typically pick up the slack.

Concentration can make you a killing or it could kill your investment.

Therefore, it is important to adopt a multiple asset class investing strategy to diversify your investments so you can capture both the winners and the losers, while not being too exposed in each of these areas.

Reference:

ASU, W. P. Carey, School of Business. (2022). Do stocks outperform Treasury bills? Retrieved from https://wpcarey.asu.edu/department-finance/faculty-research/do-shares-outperform-treasury-bills

Withdrawals pre-Christmas

If you require any one-off withdrawals or require additional funds before Christmas Eve, please let your adviser know, or reply to this email before Monday, the 4th of December so we can account for this when rebalancing.

The funds will be paid out within 10 business days.

Please note that regular withdrawals that has been set prior to this are unaffected. You can expect your regular withdrawals to occur automatically, on the date you have specified (or the business day after).

As always if you require the funds to be withdrawn after this period, we can still arrange for this to be done. Please contact us at advisersupport@foxplan.nz or info@foxplan.nz and we will assist you.

FoxPlan’s offices will be closed from the 22nd of December 2023 and will re-open on the 8th of January 2024. During this period, if you have any urgent requests, please see below the list of our investment supplier details.

FOXPLAN SUPPLIER CONTACT DETAILS

As we wrap up 2023, from all of us at FoxPlan, we would like to wish you Merry Christmas and a Happy New Year. We look forward to assisting you with your plans through 2024 and beyond. You can read all of our investment newsletters throughout the year on our website by clicking the link below.

We are only a phone call or an email away should you wish to discuss anything. Please get in contact with your adviser or contact us on 0800 NO STRESS (0800 667 873) or email at info@foxplan.nz if you have any questions or would like your adviser to talk through your current investment plan.

Kind Regards,
The FoxPlan Team