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The Stampede to Large Cap GrowthSubmitted by CHARLES CARROLL FINANCIAL PARTNERS on June 2nd, 2017
The Stampede to Large Cap Growth
Large cap growth stocks are carrying the market. The largest of the large stocks have been on fire attaining new highs almost weekly. Since the beginning of this year through May 24th, the stocks listed below, are showing strong if not implausible returns:
Equity Symbol YTD Return
Apple AAPL +32.40%
Amazon AMZN +30.74%
Facebook FB +30.41%
Alphabet/Google GOOG +23.73%
Comcast CMCSA +16.81%
NewMarket NEU +10.69%
United Health Group UNH + 9.72%
Emerging Markets I Shares EEM +18.22%
DFA Emerging Markets DFEMX +17.91%
Alibaba BABA +39.86%
All the securities above are in various Charles Carroll Financial Partners portfolios and have been for most 2017. Many are substantial positions within client accounts, and it would not be unusual to see any four of these securities representing nearly 25% of client portfolios.
While we have sold much of our Amazon position in early May, we continue to hold almost all the other positions shown above apart from Alibaba. Alibaba has replaced Amazon in many accounts and could be considered as the Amazon of China.
There have been a few new entries into the portfolio since the beginning of the year. We now hold positions in Global Payments (GPN), Intuit (INTU), and Alibaba (BABA). Along with these individual equities, we have deepened our commitment to non-U.S. based securities by switching out the Emerging Markets ETF (Symbol:EEM) for the DFA Emerging Markets Fund (Symbol:DFEMX).
As discussed in other quarterly letters DFEMX has a lower expense ratio than EEM and has shown a better long-term rate of return. In most portfolios, the switch from EEM to DFEMX was not on a one-for-one dollar basis and in fact saw more investment going to DFEMX.
The returns since the beginning of the year for the major indices have not fared as well as the individual stocks shown above. The S & P 500 and the DJIA Average have seen solid returns that are in the high single digit range. Only the Nasdaq is showing year to date returns in the teens.
So, what is driving this market? Pundits are claiming that it is due to the “Trump Bump.” However, it is our belief that the last 8 years have provided a unique opportunity for corporations to recast their debt, if not altogether eliminate it, clearing the way for substantial increases in earnings. Earnings for the S & P 500 are increasing in the double-digit range for 2017 over 2016.
While there is still some residual hope that tax reform and the repatriation of foreign cash will occur this year, the more likely outcome seems to be that these legislative initiatives will never happen. It seems that domestically the Trump Bump may have turned into the Trump Frump.
While it has been a favorable climate for U.S. equities this calendar year, the U.S. market place seems to be losing steam when compared to foreign markets. Don’t be surprised to see more foreign positions within portfolios.