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Pop Quiz


All the recent earnings announcements may have you curious about how the companies you own are doing. We hear a lot about the big fish in the market (you may remember a piece we referenced a few weeks ago, Large and In Charge? Giant Firms atop Market Is Nothing New), but what about the other roughly 13,000 companies a globally diversified investor might hold?

Time for a POP QUIZ!

Q: What were the top 3 performing US stocks last quarter?

A: Congratulations to Celldex Therapeutics Inc., which rang in at #1 with a whopping +683%. In second place was Camping World at 380%, followed by Macrogenics, also up around 380%. Other top US performers included Michaels, Wayfair, and Nautilus.

If you think that's good, try taking a look outside of the US. The top global performer was India-based company Birla Tyres Ltd., which returned 1,434%.

Q: What about the 3 worst performing US stocks?

A: Bringing up the rear were Diamond Offshore Drilling, Pyxus International, and Akorn Inc., each down between -83% and -87% for the quarter. Other bottom 10 worst performers included Frontier Communications, Hertz Global, and Tuesday Morning.

Q: How did our FAANG (Facebook, Apple, Amazon, Netflix, Google aka Alphabet - also held in that broadly diversified portfolio) stocks fare?

A: They each did quite well in absolute terms, but paled in comparison to the top performers.

Apple led the FAANG charge at nearly 44%, followed by Amazon at 41%, Facebook at 36%, Google at 22%, and Netflix at 21%. While these are great increases, an investor solely invested in these companies would have missed out on the triple, and in one case quadruple, return digits of the top performers.

At Wheels Up Wealth, we recognize the power of diversification and the power of the "underdogs." Rather than focusing solely on the names everyone is talking about, we invest across all the market, and emphasize companies with more room to grow.

Take Apple for instance. They make great products (you won’t see Bridget without her Apple Watch!), but are they a great investment going forward? Taking a look at how companies do once they reach "top 10" status in the US market, the data tells us not necessarily.

Historically, in the three years after becoming one of the ten largest stocks, companies continue to outperform the overall market by less than 1%. Over the following five years, they trail the market by 1.1%, and over the following 10 years, trail by 1.5%. In other words, once they reach the big leagues, stock performance tends to fizzle out.
Annualized return in excess of market for stocks after joining list of 10 largest US stocks, 1927–2019
This may seem counter intuitive, but it does make sense. While Apple may continue to innovate and grow, the likelihood that they can continue to double at the rate they have is possible, but unlikely. The good news, however, is that regardless of whether FAANG stocks have passed their heyday, within the 13,000 other stocks you own, the next "Apple" is waiting in the wings, and you'll be there to capture that performance when it's ready for its big debut.
Chart Source: Dimensional, using data from CRSP and Compustat. Includes all US common stocks. Largest stocks identified at the end of each calendar year by sorting eligible US stocks on market capitalization using data from CRSP. Market is represented by the Fama/French Total US Market Research Index. Excess return for each stock is the difference in annualized compound returns between the stock and the market, computed from the first month following initial classification in the top 10. Stocks in the sample are required to have at least 36 months of returns data following classification in the top 10.

As part of our investment philosophy, Wheels Up Wealth does not attempt to make investment decisions based on market timing. The strategy emphasizes producing the returns of the asset class, not security level performance. Data provided for the period covered on an absolute basis.