“If you look at the top 25 stocks by market cap, more than 40% of their sales come from overseas. The dollar is cheap, and emerging markets are continuing to grow very rapidly.”
On their own merits, they look good, but when large-caps are compared with bonds, they look even more attractive. “Dividend yield on the S&P is at reasonably historic highs and bond yield is historically low. The S&P looks attractive relative to bonds,” says Michael.
Michael acknowledges that so far, small-caps have been outperforming at historic extremes. “But if you look on a long-term basis relative to large-cap, the gap starts to close. It’s what we’ve started to see in the last six months to a year.”
He believes this gap is only going to continue to close further.
The size of the large caps, coupled with their high visibility in the marketplace, are going to continue to draw investors toward them as the markets remain volatile.
“People are looking for visibility and stability, and you tend to get that more from large-caps than small-caps,” he points out.
SPA MarketGraders listed in the United States in October of last year. Their funds are constructed by a quant model.
- SPA ETF Market Grader Large Cap (SZG), down 13% year-to-date
- iShares S&P 100 Index Fund (OEF), down 14.4% year-to-date
- SPDR S&P 500 ETF (SPY), down 13.4% year-to-date
- Vanguard Large cap ETF (VV), down 12.5% year-to-date
- PowerShares QQQ (QQQQ), down 12.9% year-to-date