The times they are a-changin'
THERE was a time when ICI (Imperial Chemical Industries) was regarded as the bellweather of the UK stock market. It was formed in 1926 and rose to become the largest manufacturing company in the UK, with a worldwide reputation. It went through a number of radical changes, which included demerging Zeneca in the 1990s, which subsequently became one of the largest pharmaceutical companies on the global stage, and ICI itself was ultimately taken over by AkzoNobel in 2007. The pace of change of the world's largest companies seems to have speeded up and unsurprisingly the type of business which dominates has altered radically. Twenty years ago the largest company was General Electric, the US conglomerate and there was a healthy mix of activities in the top ten companies (by market capitalisation). There were two oil companies (Royal Dutch Shell and Exxon Mobil), two technology (Microsoft and Intel), two healthcare (Merck and Novartis), a beverage giant (Coca Cola), a car company (Toyota) and a telecommunications company (Nippon Telegraph and Telephone). Of these, six were US companies, two were Japanese, one Swiss and one Anglo-Dutch.
Fast forward to 2017 and the picture has changed dramatically. The top five largest companies are all technology related: Apple, Alphabet (Google), Microsoft, Facebook and Amazon. The next five also include two further tech stocks – Alibaba and Tencent – and the remaining three are Berkshire Hathaway (Warren Buffet's investment vehicle), Exxon Mobil and Johnson and Johnson. Of these, eight are US companies and the remaining two Chinese. This is highly illuminating and illustrates just how quickly things change. Firstly the type of company: the growing dominance of technology which we ignore at our peril. Secondly, the nationality of the companies is very interesting: witness the downfall of Japan as a global superpower, the decline of Europe and the growth of China. It provides a clear indication that we should at least consider this new economic giant.
Clearly this is not the whole picture and the top ten companies is a very limited snapshot of the world's economy. It does provide food for thought, however, and there are some clear messages regarding the composition of portfolios and the increasing need to look at investment on a global basis. Technology is without doubt here to stay; even in 2000, when technology stocks were riding high, there were only three amongst the largest ten companies, although nine out of ten stocks were US based. The question does remain as to how best to gain exposure to these areas. One answer is to use a collective fund, of which there are many, and which in the current environment no longer charge prohibitively high fees. This has the advantage of gaining exposure to a wide number of companies and indeed countries, thus reducing the stock specific risk. Investment is an increasingly global business and despite the ever-growing burden of regulatory concerns, it is important to focus on a wider spectrum than we have perhaps been used to.
::Cathy Dixon is a director at the Belfast office of Cunningham Coates Stockbrokers, a trading name of Smith & Williamson Investment Management ( SWIM). This article does not constitute a recommendation to buy or sell investments and the value of any shares may fall as well as rise. Investments carry risk and investors may not receive back the amount invested. The views expressed are those of the author and not necessarily of SWIM.