Stick to U.S. stocks that offer experience over hope, Goldman says
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Investors are still net sellers of U.S. stocks, but they may be ignoring return on equity, according to the Goldman Sachs equity team.
The "S&P 500 (SP500) (NYSEARCA:SPY) (IVV) (VOO) has a long-term track record of outperforming other global equity markets so 'hope over experience' may be the reason why investors YTD have been net sellers of US stocks and ETFs and net buyers of international equities," strategist David Kostin wrote in a note.
The "S&P 500 (SP500) (SPY) (IVV) (VOO) has a long-term track record of outperforming other global equity markets so 'hope over experience' may be the reason why investors YTD have been net sellers of US stocks and ETFs and net buyers of international equities.", strategist David Kostin wrote in a note.
âThe triumph of hope over experienceâ is a hotly debated topic among portfolio managers," Kostin said. "There are two vectors of discussion."
"The first issue concerns generative Artificial Intelligence (AI) and the degree of disruption that the innovation may cause," he said. "Investors have confidence that a select few firms will generate super sized profits while the returns on AI capex initiatives for most other organizations are less clear."
As Kostin noted last week: "The seven largest stocks in the S&P 500 (Apple (AAPL), Microsoft (MSFT), Amazon (AMZN), Alphabet (GOOGL) (GOOG), Nvidia (NVDA), Meta (META), Tesla (TSLA)) account for 28% of the market cap and have contributed 12 pp of the indexâs 19% YTD total return."
The second relates to investing in U.S. vs. non-U.S. stocks.
"Explanations of why US equities have persistently outperformed international markets typically start with sector composition," Kostin said. "The Information Technology (XLK) sector accounts for 28% of the S&P 500 equity cap compared with just 7% of the MSCI Europe (IEUR), 14% of the TOPIX (SPTOPIX), and 20% of the MXAPJ (AAXJ)."
"Tech stocks have posted faster sales and dramatically higher margins relative to other sectors and that compositional difference benefits the S&P 500 more than other global indices."
"Our search for explanations of superior US equity market returns ultimately came back to corporate fundamentals," he added. "At the end of 1Q 2023, the trailing ROE for the overall index equaled 20.4%, ranking at the 97th percentile since 1975."
"In evaluating the ROE for different global markets, we focused not just on the level of ROE but also on the magnitude of the change. During the past decade, the ROE for the S&P 500 increased by 480 bp compared with a 370 bp increase for Stoxx 600 index, a rise of 310 bp for the TOPIX, and a decline of 135 bp for the MXAPJ."
"Managements of US publicly-traded companies increased the returns for their shareholders during the past decade by a far greater amount than their counterparts in Europe, Japan, and Asia."
Top 10 constituents
S&P 500

Apple (AAPL), weight 7.5%
Microsoft (MSFT), 6.5%
Alphabet (GOOG) (GOOGL), 3.8%
Amazon (AMZN), 3%
Nvidia (NVDA), 3%
Meta Platforms (META), 1.8%
Tesla (TSLA), 1.8%
Berkshire Hathaway, 1.6%
United Health (UNH), 1.2%
JPMorgan Chase (JPM), 1.2%

Stoxx 600

Novo Nordisk (NVO), 3%
Nestle (OTCPK:NSRGY), 2.8%
Roche (OTCQX:RHHBY), 2.3%
LVMH (OTCPK:LVMHF), 2.2%
ASML (ASML), 2.2%
Novartis (NVS), 2%
AstraZeneca (AZN), 1.8%
Shell (SHEL), 1.7%
SAP (SAP), 1.3%
HSBC (HSBC), 1.2%

TOPIX 

Toyota (TM), 3.9%
Sony (SONY), 2.8%
Keyence (OTCPK:KYCCF), 2%
Mitsubishi UFJ (MUFG), 2%
Nippon Telegraph and Telephone (OTCPK:NTTYY), 1.6%
Mitsubishi (OTCPK:MSBHF), 1.4%
Sumitomo Mitsui Financial (SMFG), 1.4%
Hitachi (OTCPK:HTHIY), 1.3%
Tokyo Electron (OTCPK:TOELY), 1.3%
Mitsui & Co. (OTCPK:MITSY), 1.2%

MXAPJ

Taiwan Semi (TSM), 6.2%
Tencent (OTCPK:TCEHY), 3.8%
Samsung Electronics (OTCPK:SSNLF), 3.7%
Alibaba (BABA), 2.8%
BHP Group (BHP), 2.2%
Commonwealth Bank of Australia (OTCPK:CBAUF), 1.7%
AIA Group (OTCPK:AAGIY), 1.6%
Reliance Industries, 1.3%
Meituan (OTCPK:MPNGF), 1.2%
CSL Limited (OTCQX:CSLLY), 1.2%


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