It sounds like a breakfast cereal … but Granolas – not Granola – is becoming terribly, terribly, tasty to investors.
We’ve had BRICS, FAANGs, and MANAAM in the seemingly endless acronyms that financial professionals have come up with for grouping stocks or countries that they see as opportunities.
Granolas is the latest buzzword, encompassing 11 European companies that are driving stock market growth to rival the US Magnificent Seven, though with some notable and important differences.
The United States has Alphabet, Amazon, Apple, Meta, Microsoft, Nvidia and Tesla, accounting for around 29% of the S&P 500’s market capitalisation.
Europe counters with GSK, Roche, ASML, Nestle, Novartis, Novo Nordisk, L’Oreal, LMVH, AstraZeneca, SAP and Sanofi.
Maybe lagging a tad compared to across the Pond, nevertheless, the spin is that granolas, with a combined market cap exceeding €2.6 trillion, responsible for around a quarter of the STOXX 600’s market cap, and since 2021 producing a return of 72%, not far off the Magnificent Seven’s 98%, give Europe some crunch.
“They are a large part of the reason why European equities have performed well despite lacklustre domestic GDP,” Goldman Sachs noted.
At 2.5%, Granolas’ average dividend yield significantly outpaces the S&P 500’s 1.5% and dwarfs the Magnificent Seven’s 0.3%. They also have fingers in some of the most promising pies including ageing populations and advancements in AI and robotics.
And, while the US’s favourite players are all in the technology sector, the granolas have a wider range – six healthcare, just two technology, and one each household and personal products, packaged foods and consumer cyclical (luxury goods).
For us at Eastcote Wealth Management, the point here is not that we’re urging people to invest in these 11 companies specifically, but to show that diversification in a portfolio is important and forgotten or disregarded regions (specifically Europe) do have dynamic and growing businesses that will drive portfolio growth. They shouldn’t be avoided simply because of a perception that these are only “old” industries operating in a moribund economy. US mega tech is not the only game in town. Investors need to be able to see around there own pre-conceptions when constructing portfolios.
Our parent company, investment giant 7IM, adds: “As the world continues to enjoy the sugar-hit of technology, the granolas, like their edible counterpart, serve as a good reminder that a blend of ingredients isn’t such a bad idea.”
Swarup Gupta, industry manager and lead analyst in financial services at the Economist Intelligence Unit, told Fortune magazine: “They have proven popular despite Europe’s precarious economy. They provide a healthier, balanced portfolio in times of great economic and political uncertainty.”
Nevertheless, global risks abound such as the Russian/Ukraine war, China’s threat to Taiwan, Iran and North Korea, all of which could destabilise markets.
Several of Europe’s major economies are flirting with recession, or are already in one.
The continent’s biggest, Germany, declined by 0.3% last year and the country has slashed its growth outlook for 2024.
Hence, there are sceptics.
“Catchy names do not necessarily make for good investments over the long term even if the hype can push share prices along the near term,” commented Russ Mould, investments director at stockbroker AJ Bell.
“The firms in question have little or nothing in common barring their geographic origin in Europe, and the acronym is just a marketing tool, no more.”
Maybe however the last word should go to Goldman who are credited with coming up with the granolas terminology.
Their strategists stated: “In our view, the reason why this group of stocks trades at a premium to the market is that they offer strong (and predictable) growth.”