Don’t just rely on big names

What is the impact of the ‘Big Five’ on the long-term investor? Dr Benjamin Holdsworth on why winners do not usually keep on winning.

Investors love good stories. In recent years, many of these stories have centred around innovations that have fundamentally changed the way we live our lives. 

Some examples might include the release of the original Apple iPhone in 2007, the delivery of Tesla’s first electric cars in 2012 and the launch of Amazon Prime’s same-day delivery service in 2015. 

No doubt, many of you will have had conversations with friends and family around the successes, failures and prospects of some of the world’s largest firms and the goods and services they offer. 

But what is the significance of the ‘Big Five’ tech companies – Amazon, Apple, Alphabet (Google), Facebook and Microsoft – in terms of the long-term investor?

In what has been a turbulent year thus far, some larger firms have come through the first – and hopefully last – wave of the on­going pandemic relatively unscathed. Those investors putting their nest eggs entirely in any combination of the ‘Big Five’ would appear to have done astonishingly well relative to something sensible like the MSCI All-Country World Index, which constitutes 3,000 of the world’s largest firms. At time of writing, Amazon’s share price has fared best, increasing 75% since the beginning of the year.

These types of firms tend to struggle to stay out of the headlines for one reason or another. Perhaps as a result, many of the investment funds found in ‘top buy’ lists – such as the one on AJ Bell’s Youinvest platform – have overweight positions in one or more of these stocks. Many of today’s most popular funds are making big bets on one or more of these companies, anticipating that the past will repeat itself moving forwards.