Investing in global giants
It can be comforting to invest in the world’s largest companies. Such businesses are usually household names, giants in their respective industries, and pay handsome, regular dividends.
As they are also closely watched by an army of stock market analysts, the hope is that any looming financial problems will also be well-flagged before they become a major issue.
Here, we take a look at some of the biggest corporate names on the planet, outline why they’ve been successful, and suggest ways of getting exposure.
Defining large companies
Which companies are the biggest in the world – and how can this be gauged? Well, this all depends on which factors you choose to base the decision. For example, you can judge it on revenues generated, profits made, or the overall market capitalisation.
This last measure is the route we’ve chosen. Market capitalisation – known more simply as market cap – is calculated by multiplying the current share price with the number of shares in circulation.
The trillionaire’s club
There are currently six companies in the world with market capitalisations of more than a trillion dollars, according to companiesmarketcap.com.
This exclusive trillionaire’s club is dominated by companies that are heavily involved – either directly or indirectly – with technological developments. It’s arguably the most important trend in investment circles, as advances in this area impact everything from car production to computers and the healthcare industries.
The trillionaire’s club: The world’s largest companies by market cap – as of 5 January 2022
1. Apple – technology - $2.9 trillion
This innovative US technology giant has sold mobile phones, computers and accessories around the world for the past four decades. The launch of its latest iPhone is always eagerly awaited.
2. Microsoft – software – $2.4 trillion
The US company, which was founded by Bill Gates in the 1970s, develops and licenses software to consumers and businesses. Its products include Word and Teams.
3. Saudi Aramco – oil – $1.90 trillion
This Saudi Arabian company, which is headquartered in the city of Dhahran, is the world’s largest integrated oil and gas company. It employs more than 70,000 people.
4. Alphabet (Google) – internet/tech – $1.8 trillion
This is, effectively, search engine business Google. Its products include Gmail, Chrome, Google Drive, alongside a host of other businesses at various stages of development.
5. Amazon – e-commerce – $1.6 trillion
Amazon has become a leading name in e-commerce, having started life as a small firm selling books about a quarter of a century ago. It’s now involved in everything from retail to film production.
6. Tesla – autos/electric vehicles – $1.1 trillion
Elon Musk’s electric vehicle specialist has developed a fleet of eye-catching cars and various clean energy products. It stands to benefit from increasing regulations on internal combustion engines.
The next pretenders
Currently sitting just outside the top six is Meta, better known by its previous name, Facebook, which has a market cap of $901.7bn.
Then there is a significant drop to investor Warren Buffett’s conglomerate, Berkshire Hathaway, on $693.6 billion, followed by US technology firm NVIDIA on $687.9 billion. The top 10 list is completed by TSMC (Taiwan Semiconductor Manufacturing Company), which is one of the world’s largest semiconductor providers. It has a market cap of $658.9 billion.
Ways to get exposure
There are a number of ways to embrace the largest companies on the planet. You can, of course, buy their individual shares, although these can be expensive, and it can be risky backing a single name. If the company hits a problem – or feels the effect of issues outside of its control, such as tax increases – the value of your holding could plummet.
An alternative is buying into an investment fund and leave such individual stock calls to an active manager who monitors markets and companies on a daily basis.
What funds invest in big companies?
The biggest firms are feted by a variety of investment funds, including those with global mandates, portfolios focused on large-cap names, and those with country-specific objectives.
They will also be considered by funds that favour dividend-producing stocks, as well as those that choose to invest in specific sectors.
Here we highlight three such portfolios that may be worth considering:
The T. Rowe Price US Large Cap Growth Equity fund, managed by Taymour Tamaddon, embraces many of the largest companies in the world. It invests in a diversified portfolio of large cap US company shares that have the potential for above-average and sustainable rates of earnings growth.
Its two largest holdings are currently Microsoft and Alphabet, which account for 9.7% and 9.4% of assets under management respectively, according to the most recent fund factsheet*. Also among the top 10 positions are Amazon on 9%, while Apple weighs in with 5%. Meanwhile, Meta, which sits just outside the trillionaire’s club, makes up 5.8% of the fund*.
The M&G Global Dividend fund, meanwhile, is worth considering if you subscribe to the idea that larger companies offer a greater chance of decent, regular dividends. The fund’s manager, Stuart Rhodes, has three aims: increase the income stream every year; provide a dividend yield above that of the MSCI All Country World Index over any five-year period; and provide combined income and capital growth higher than the index over any five-year period.
According to the most recent fund factsheet, Microsoft is one of the largest positions in the portfolio, accounting for 4.1% of assets under management*. In early December, Microsoft announced its board of directors had declared a quarterly dividend of $0.62 per share. This will be paid in March.
Finally, Capital Group New Perspective fund, has a track record of more than 45 years, investing in some of the world’s largest multinational firms that are able to benefit from transformational changes in the global economy. The fund has a unique multiple manager structure, with each of the seven named managers running their ‘sleeve’ in their own way. Their best ideas are blended together for a diversified portfolio.
It also has extensive exposure to the trillionaire’s club, with four of the firms and two next pretenders in its top ten holdings*: Tesla (8.3%), Microsoft (4%), Amazon (3%), Meta Platforms (3%), TSMC (2.9%) and Alphabet (2.7%). The remaining four largest holdings are ASML, JP Morgan Chase, Netflix and Broadcom.
*Source: fund factsheet, 30 November 2021
Past performance is not a reliable guide to future returns. You may not get back the amount originally invested, and tax rules can change over time and yields will fluctuate. The views expressed are those of the author and fund managers and do not constitute financial advice.