If you think the FTSE 100 and London Stock Exchange more generally have been producing some fantastic returns over the past few years, you’d be right. Over the past 5 years the FTSE 100 has gained almost 35%. The FTSE All Share, which is comprised of every stock listed on the London Stock Exchange, has gained over 40% during the same 5-year period.
However, those gains are dwarfed by the 90% increase in value the S&P 500, the main U.S. benchmark index, has realised between November 2012 and now. The Nasdaq has returned around 137% and the Dow Jones around 87%. It’s fair to say that anyone invested in U.S. equities has made some fantastic returns over the past 5 years. Of course, it is extremely unlikely, and would be completely unprecedented, were the next five years to see returns even remotely approaching those of the past half-decade. There are still some very attractive companies over the pond though that UK investors should be considering to help boost their stocks and shares ISA returns.
Many UK stock brokers now offer U.S.-based equities at very reasonable dealing charges and an additional advantage of gaining some exposure to the U.S. stock market is diversifying currency risk. If the pound drops further on Brexit woes, having part of a stocks and shares ISA in dollar-denominated stock could lead to additional returns if sold and converted back into weaker pounds. Dollar-denominated dividends would also be a boost.
Investment analysis and management firm Morningstar recently interviewed Helen Xiong, manager of the Baillie Gifford American Fund. She was asked to pick three top U.S. stocks from her fund that show both strong growth and globally-diversified revenues. The three companies chosen are also far from obscure: Amazon, Facebook and Tesla.
Xiong believes that despite Amazon’s huge success in developing from an online book shop to its present position as one of the ‘big 5’ global tech giants, its ecommerce background means the company is still underappreciated by the market. The size of Amazon’s potential market keeps being pigeon-holed by potential investors. It was once thought that the $6 billion value of the U.S. book market was Amazon’s total addressable market. The company saw revenues hit $130 billion last year and it just keeps finding new markets and verticals to expand into.
Even in e-commerce Xiong sees plenty of room for growth, with it still just accounting for 15% of the total retail market. The company’s Web Services unit, which focuses on cloud computing solutions, is growing quickly and revenues have hit $10 billion. It’s a market that is generally growing rapidly in value and Amazon is one of the market leaders. Amazon’s voice operated assistant Alexa is also becoming the standard for integration in smart appliances for the home and looks like it will become the default smart home operating system, another market with huge potential.
Moving onto Xiong’s second pick, Tesla, the investments analysts is of the opinion that while it represents something of a gamble, the company is currently in the strongest position on any to capitalise on the shift towards electric cars. The big international car companies have 100 years of intellectual property wrapped up in the internal combustion engine that is set to become all but obsolete.
A future dominated by electric cars will see the value in the market move away from engineered hardware and into software. Xiong believes Tesla is the only company “the really understands that shift”.
Facebook, the third pick, has impressed with the pace of its phenomenal growth over the past decade. Between Facebook itself, and messaging service WhatsApp, which Facebook owns, the company has over a billion users. Xiong believes that the way Facebook has democratised the way we consume content means it has arguably become the most important place for companies to engage with customers. She also thinks that trend still has some way to go and is not yet close to peak.
Most tellingly, Facebook currently accounts for a huge 5% of global advertising spend. However, it should be more with 10% of global ‘attention’ dominated by time spent on Facebook. If, as she expects, ‘the money follows the eyeballs’, Facebook still has huge potential to grow its advertising revenue. There are also plenty of areas, such as video, that are still relatively immature and will be revenue growth areas for Facebook into the future. The company is also investing heavily in areas such as Augmented Reality that could, in the way Amazon have opened up new revenue streams throughout its history, open up significant new markets going forward.