Much attention has been given to the “Magnificent 7” or “big tech” stocks recently (Apple, Microsoft, Alphabet, Amazon, Nvidia, Meta, Tesla), which have dominated market performance since the start of 2023. In fact, the top ten largest stocks in the S&P 500 Index (the “Index”), which includes the Magnificent 7, accounted for 85% of the Index return from January 1, 2023 to February 20, 2024 as shown in the chart below (left). The Magnificent 7 stocks essentially drove all the profit growth in the Index in 2023, with earnings up an estimated 31% for the group compared to a 4.3% decline in earnings for the rest of the Index.1 However, leadership is expected to broaden out in 2024 with 39% of earnings growth projected to come from the Technology sector and 61% coming from the rest of the Index.2 While we continue to have a positive view on big tech, we believe equity market performance will broaden out in 2024 to sectors and regions that lagged in last year’s rally. Broader valuations for the U.S. market, ignoring the top ten stocks, are more reasonable and global equity valuations ex-U.S., are in line with historical levels and are at an historic low relative to the Index (see chart below – right side).
Performance of the top 10 stocks in the S&P 500
Indexed to 100 on 1/1/2023, price return, top 10 held constant
International: Price-to-earnings discount vs. U.S.
MSCI All Country World ex-U.S. vs. S&P 500, next 12 months
Source: J.P. Morgan Asset Management, as of February 20, 2024. (Left) The top 10 companies used for this analysis are held constant and represent the Index’s 10 largest index constituents at the start of 2023. The top 10 stocks are: AAPL, MSFT, AMZN, NVDA, GOOGL, BRK.B, GOOG, META, XOM, UNH, and TSLA. The remaining stocks represent the rest of the 494 companies in the S&P 500.
While expectations for a soft landing and declining interest rates creates a positive backdrop for equities, risks to this outlook remain. One way investors can position for a broadening out in market participation while balancing risk is through a multi-asset approach combining global equities and fixed income. Brompton Enhanced Multi-Asset Income ETF (BMAX) offers a unique multi-asset strategy by combining global equities, diversified by sector and geography, with Split Corp. preferred shares and U.S. investment grade preferred shares. Historically, this multi-asset blend with 70% global equities and 30% U.S. and Split Corp. preferred shares has provided a favourable risk/return profile versus equities and traditional fixed income, as shown in the chart below.
Multi-Asset: Higher Risk-Adjusted Returns
Brompton Enhanced Multi-Asset Income ETF (“BMAX”) offers a unique multi-asset approach by combining investments in equity ETFs, and fixed income ETFs currently focused on U.S. Investment Grade Preferred Shares and Split Corp. Preferred Shares. The equity ETFs included in the BMAX portfolio provide sector diversification and are globally diversified across major developed markets, giving investors the opportunity to benefit from the long-term growth potential of high-quality companies while reducing the concentration risk of investing in one single sector or region. Over the last three months BMAX has returned 14.6%, benefitting from strong performance broadly across sectors and stocks beyond the Magnificent 7, a trend we believe will continue in 2024.
BMAX is the first enhanced multi-asset ETF in Canada, employing a modest amount of leverage (target 33% of NAV) in order to enhance income and capital appreciation potential. This unique approach to a multi-asset solution provides investors with attractive income as well as asset class and geographic diversification in a single ETF.
(1) Source: J.P. Morgan Asset Management. “Market Cap or Equal Weight?”, February 14, 2024. https://am.jpmorgan.com/us/en/asset-management/liq/ insights/market-insights/market-updates/on-the-minds-of-investors/market-cap-or-equal-weight/
(2) Source: J.P. Morgan Asset Management. “1Q 2024 Guide to the Markets”, as of December 31, 2023. Based on next 12 months earnings growth (the percent change in next 12-months earnings estimates compared to last 12-months earnings provided by brokers).
(3) Returns are for the periods ended January 31, 2024 and are unaudited. Inception date October 18, 2022. The table shows BMAX’s compound returns for each period indicated. Past performance does not necessarily indicate how BMAX will perform in the future. The information shown is based on Net Asset Value per unit and assumes that distributions made by BMAX on its units in the period shown were reinvested at Net Asset Value per unit in additional units of BMAX.
(4) Annualized distribution rate based on January 31, 2024 closing markt price. Source: LSEG Eikon.
This document is for information purposes only and does not constitute an offer to sell or a solicitation to buy the securities referred to herein. The opinions contained in this report are solely those of Brompton Funds Limited (“BFL”) and are subject to change without notice. BFL makes every effort to ensure that the information has been derived from sources believed to be reliable and accurate. However, BFL assumes no responsibility for any losses or damages, whether direct or indirect which arise from the use of this information. BFL is under no obligation to update the information contained herein. The information should not be regarded as a substitute for the exercise of your own judgment. Please read the prospectus before investing.
Commissions, trailing commissions, management fees and expenses all may be associated with exchange-traded fund investments. The indicated rates of return are the historical annual compounded total returns including changes in unit value and reinvestment of all distributions and do not take into account sales, redemption, distribution or optional charges or income taxes payable by any securityholder that would have reduced returns. Please read the prospectus before investing. Exchange-traded funds are not guaranteed, their values change frequently and past performance may not be repeated.
Information contained in this document was published at a specific point in time. Upon publication, it is believed to be accurate and reliable, however, we cannot guarantee that it is complete or current at all times. Certain statements contained in this document constitute forward-looking information within the meaning of Canadian securities laws. Forward-looking information may relate to matters disclosed in this document and to other matters identified in public filings relating to BMAX, to the future outlook of BMAX and anticipated events or results and may include statements regarding the future financial performance of BMAX. In some cases, forward-looking information can be identified by terms such as “may”, “will”, “should”, “expect”, “plan”, “anticipate”, “believe”, “intend”, “estimate”, “predict”, “potential”, “continue” or other similar expressions concerning matters that are not historical facts. Actual results may vary from such forward-looking information. Investors should not place undue reliance on forward-looking statements. These forwardlooking statements are made as of the date hereof and we assume no obligation to update or revise them to reflect new events or circumstances.
