They are the giants of the corporate world. With global profiles and huge market capitalisations, they’re among the most popular stocks on international indices. But do companies with the largest valuations actually make good investments? Here we analyse the exclusive trillion-dollar club.
What is the trillion-dollar club?
These are listed companies with market capitalisations of at least $1 trillion. Tech giant Apple was the first to achieve this feat, in early August 2018. It was followed a few weeks later by online retailer Amazon and then Microsoft in April 2019. Today, 15 companies are valued above $1 trillion. Valuations rise when investors are willing to pay more for a company’s shares. This enthusiasm can be due to improving sector prospects, new products or better financial results.
Who are the members?
Technology companies currently dominate the trillion-dollar club, largely due to the artificial intelligence boom. However, pharmaceuticals, oil giants and car manufacturers also make the list, while retailers, banks and payment firms are on the periphery. Twelve of the 15-strong membership are from the US – including the top five – with those based in Taiwan, Saudi Arabia and South Korea taking the remaining slots*.
Who are the biggest players?
NVIDIA, which manufactures graphics processing units, tops the table with a $5.12 trillion market cap*. A single share in the company costs $222, with the price having risen over 900% in the past five years**. Apple is just behind on $4.83 trillion, followed by Alphabet (Google’s owner) on $4.17 trillion, Microsoft on $3.69 trillion and e-commerce giant Amazon with $2.67 trillion*. One of the best performers this year has been Micron Technology*, which has entered the club after its share price soared over 500% over the past year on the back of AI optimism**.
Pros and cons of investing in mega-caps
Many of these 15 powerhouses have enjoyed spectacular share price hikes due to their involvement in fast-growing sectors. Investors who bought into their stories a few years ago would have enjoyed bumper profits as the stock price was constantly re-rated. However, past success doesn’t automatically mean it’s a must-buy.
There are plenty of attractions. These companies often have established market positions, significant financial firepower and competitive advantages that can be difficult for rivals to replicate. Their scale can also help them take advantage of global growth opportunities, while strong cash flows may give them the ability to return money to shareholders.
However, there are risks. Strong past performance can leave valuations looking stretched and investor expectations exceptionally high. Their sheer size may also make rapid future growth harder to achieve. Investors should also consider concentration risk, particularly where markets are dominated by a handful of companies, as well as increased regulatory and political scrutiny.
Ways to get access
Investors looking for exposure to the trillion-dollar club don’t necessarily need to buy individual shares. Funds can provide access to a number of these mega-cap companies within a broader, diversified portfolio. However, the level of exposure can vary significantly depending on the fund’s investment approach. Here are three funds that take different approaches to investing in some of the world’s largest companies.
Our first contender is BlackRock Global Unconstrained Equity. This is a concentrated, high-conviction fund that takes a long-term approach. Amazon, Alphabet and Meta Platforms are among its largest holdings, with industrials, IT and financials being its most high-profile sectors***. We believe this fund has a sound philosophy and strategy. It also benefits from accessing BlackRock’s huge global resources. The experienced co-managers, Alister Hibbert and Michael Constantis, have delivered exceptional performance for investors and that gives us cause for optimism.
We also like Artemis US Extended Alpha. It has a long/short strategy that means it can make money from both rising and falling share prices. This 130/30 approach differentiates it from US peers and gives the managers more tools with which to deliver positive returns. The fund also has plenty of exposure to big names, with Nvidia, Amazon, Apple, Microsoft and Alphabet accounting for a quarter of the portfolio***. Information technology has the largest net sector exposure of 30.5%, followed by healthcare and financials with close to 15% each***.
Then there’s AXA Framlington Global Technology. As its name suggests, this fund focuses on the sector in which many of the world’s largest companies operate. This is an unconstrained, style-agnostic fund that can invest in new technology, while having significant exposure to large-caps.
The managers are very experienced with excellent knowledge. We like their focus on investing in tech innovators and leaders. Semiconductors, software, interactive media and IT services are among the subsectors represented, while NVIDIA, TSMC, Microsoft, Alphabet and Micron Technology are major holdings***.
