America is amazing and that is what this alert is about and also some ways to invest to capture that incredible performance. One of the wonders of not just the free world but most of the world is it doesn’t matter how pedestrian is the performance of the economy where you live and its local stock market, most of which are a complete joke, because you can still invest in the wonder that is Wall Street, the home of the greatest assembly of high quality, relentless growth stocks the world has ever seen.
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Record inflows for new climate action ETF
A new ETF, USCA (DBX USA Climate Action) has just been launched and received a record $2bn of capital on its first day of trading. There’s money out there if people like what they see. The largest holdings are a little unexpected in the light of its Climate Action focus. Maybe as time passes it will become more focused because the top five are the usual suspects for so many ETFs, Microsoft, Apple, Amazon, Nvidia and Alphabet. One of the larger holdings is an oil company, Chevron, so I don’t quite understand what the Climate Action thing is all about. There are 305 holdings in all so it is a good fund for exposure to US stocks generally and charges are an ultra low 0.07pc. It will also no doubt become a useful benchmark fund as trading develops.
New 1,000 share ETF from Goldman Sachs
One which already looks promising is GUSA (Goldman Sachs Market Beta 1000 share ETF) which is charted below. Beta is the degree to which a share’s performance correlates with the performance of the market. A beta of one means a stock which moves exactly in line with the market. When performance diverges that divergence is known as Alpha so looking for shares which do much better than the market could be described as seeking Alpha.
The idea of the GUSA fund is to pick 1000 shares which perform closely in the line with the market, which sounds very like an index fund tracking say the Russell 1000 index and there is one called IWB, with a recent chart which looks very like that of GUSA. Both charts are shown below.
ETF tracking Russell 1000 poised to break higher
What we see with both these charts is what chartists call an upward sloping triangle. The lows are getting higher but there is clear resistance around $36 for GUSA and around $225 for IWB. The fact that both funds include 1000 of the largest quoted US stocks gives them immediate benchmark status and if and when they punch through those resistance levels I will recommend a more aggressive stance to investors.
We need 24 months of trading before we can start to calculate Coppock so there is no Coppock for GUSA but the IWB Coppock which turned down in August 2021 has recently turned higher from negative giving a classic buy signal. This means the odds on a favourable breakout from the upside triangle should be good.
Subscribers will have noticed that after being bearish of the stock market in 2022 I have become much more bullish in 2023 and am finding plenty of shares and ETFs to recommend. If the bull market, which I believe has already begun, develops as I hope it will, I am going to be overwhelmed with stocks to recommend but that is all good. I have noticed in the past that when I am spoilt for choice it is a good time to be buying shares.
Already I see two features which I think are going to characterise the new bull market. First, I think technology and the technology revolution are going to be as important and exciting as ever. Secondly, the USA, with its treasure trove of high quality growth shares, is going to dominate investment returns yet again.
In a nutshell, this is going to make the new bull market look very like a continuation of the old one and increasingly that is exactly what I expect it to be.
The return on cash has gone up but it is still in low/ middle single figures which is pathetic compared to the return on well chosen shares in a bull market, which can do that in a day. So I expect there to be plenty of cash to finance a powerful bull market especially as money from all over the world pours into US shares.
I sometimes think the whole world is in a competition to attract money but only in America is this game being played with any serious intent so they are winning hands down. Countries like the UK act as though they are not even playing. Wake up guys, please, before it is too late. I am sure subscribers have got the idea now that I am a big fan of free market capitalism and take a jaundiced view of state intervention. My happy time was Reagan and Thatcher. Never have I felt so in tune with our political leaders. The present lot seem to spend their whole time thinking up ways to irritate me and as to Sir Boring and Totally Useless, I fully anticipate losing the will to live, if he forms a government. I am as out of tune with current thinking as poor Liz Truss.
Why the US is the place to invest
The good news is that we can invest in the US and that is what I urge subscribers to do. Currently I do not hold a single non-US investment and if I was younger I would seriously consider moving to the USA, at least for part of the year. Not all the time because when it comes to living I do like London, the glorious English countryside and the increasingly cosmopolitan world in which we live. Funnily enough, or perhaps not, having stayed for months in the country or at least in a market town I am back in London and loving it here. What a fabulous city!
What amazes me is that in London Labour has a 40pc lead. What on earth do they think those guys are going to do to improve things, even higher taxes, rent controls, emails saying we hate you to anyone who seems to be remotely successful. Maybe it is just anything for a change.
Below is a list of the top 10 holdings for GUSA.
And the top 10 for IWB
The lists are not identical but they are similar, which is why the charts look so similar.
What is incredible is that the market value of the second list is $9.52 trillion which for ease of calculation we could round up to $10 trillion. I can’t be bothered to do all the detailed calculations so let us assume that these shares are valued at five times sales. Apple, for example, is six currently. Divide by five and we get a combined turnover for these 10 businesses of around $2 trillion. This is like their annual GDP so we can now start to make comparisons with the GDP of individual countries.
Belgium has a GDP of $594bn so it is much smaller. The whole Belgian economy is about 50pc bigger than Apple and growing significantly more slowly. Canada is very similar with GDP around $2bn. France is bigger, Germany is bigger, China at nearly $18 trillion is much bigger, India is bigger but not as much as I expected at around $3 trillion, Italy is similar, Japan is bigger at around $5 trillion, South Korea is not far off at $1.8 trillion, Russia is around $1.8 trillion, the whole world is approaching $100 trillion, the UK is around $3 trillion and the US is around $23 trillion.
If you think of the USA plus China as half the global economy you are not too far wrong.
You can see why I think of these trillion dollar US mega caps as increasingly being medium sized countries with incredible economic heft and as technology powerhouses they are growing faster than any of the world’s economies.
So I think it does make sense to invest in the US megacaps either individually or as part of an ETF and if you want even more action and excitement there is always QQQ3, the ultimate equity thrill ride.
Strategy
These incredible mega caps are a new phenomenon. We have had important national bellwether stocks before but not on the scale we are seeing in the USA and this is happening at the dawn of the AI, artificial intelligence era. Before when we had giant companies they were in oil, chemicals, mining and banking. There was not much research and development involved and when I was younger corporate r&d spending was almost non-existent. There were one or two companies doing it like Racal Electronics, the parent of Vodafone and creator of military radio communications and in the US the telecoms giant, AT&T, had a research subsidiary called Bell Labs which produced many important discoveries. Nine Nobel prizes have been awarded for work done at Bell Labs.
R&D spending explodes
Now every technology company with any pretensions to the name is carrying out massive research and development programmes, which is a major reason for the spectacular progress being made. I just had a look at the ridiculously mind-blowing company which is Nvidia. R&D spend is currently running at around $6bn a year, which compares with more like $2bn at the beginning of the decade. The number is both huge and growing super fast. You can see why these companies are doing so well. They are investing at a furious rate in growth and are magnets for some of the finest minds on the planet. What scientist or computer geek would not want to work at somewhere like Nvidia at the cutting edge of everything exciting that is happening in the world. Imagine walking in their doors every day. Wow! And they don’t have that many employees, around 26,000 at the end of 2022. They also pay rather well.
Share recommendations
DBX XTrackers MSCI USA Climate Action. USCA. Buy @ $25
Goldman Sachs MarketBeta US 1000. GUSA. Buy @ $35.40
iShares Russell 1000 ETF. IWB. Buy @ $224.50
