Better than “Magnificent Seven”?
How eleven stocks dominate Europe’s stock exchanges
By Max Bourne
February 28, 2024, 6:13 p.m
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The big ones are getting bigger, sums up a star analyst. In the USA it is the “Magnificent Seven” who make a significant impact on Wall Street. Europe’s stock markets are also dominated by a small group of heavyweights. The “GRANOLAS” even offer investors advantages over the US stock market stars.
The phenomenon has long been known from Wall Street: the success of the stock markets can increasingly be attributed to only a small number of stocks. In the USA these are the tech giants of the “Magnificent Seven”. Apple, Meta, Nvidia, Tesla, Amazon, and Microsoft together account for nearly 30 percent of the market value of the S&P 500, the index that includes America’s 500 largest publicly traded companies. At the same time, they are responsible for almost half of this index’s price gain over the past twelve months. In other words, the performance of the entire US market depends on this small group of stocks.
What is less known is that there is also such a group of heavyweights in Europe. The investment bank Goldman Sachs gave it the acronym “GRANOLAS” after the first letters of the companies. The eleven companies GSK, Roche, ASML, Nestlé, Novartis, Novo Nordisk, L’Oréal, LVMH, Astrazeneca, SAP and Sanofi dominate the European market in much the same way that the “Magnificent Seven” dominate Wall Street.
The dimensions in Europe are smaller: the eleven “GRANOLAS” together only have a market value of around three trillion dollars. The most valuable company among them is the Danish pharmaceutical company Novo Nordisk with a valuation of over $550 billion. The seven US heavyweights, on the other hand, weigh a total of 13 trillion dollars, six of them are each worth more than a trillion dollars, only Tesla remains below the trillion threshold with a market value of 630 billion dollars.
But the dominance in their market is similar. Together, the “GRANOLAS” represent around a quarter of the market capitalization of all European companies included in the Stoxx Europa 600 index. This weight, coupled with above-average price performance, means that they are responsible for around 60 percent of the increase in the entire index last year – the remaining 540 together only account for 40 percent of the development, according to a recent analysis by Goldman Sachs . The “GRANOLAS” are the main reason why the European stock market has developed so strongly. Like the DAX, the Stoxx 600 has just reached an all-time high.
Advantage: less volatility
Compared to the “Gorthy Seven”, the “GRANOLAS” have an advantage from the investors’ point of view. Comparable returns fluctuate their price development is less strong. This is because the seven US stock market heavyweights all belong to the same industry, the technology industry. Although it has recorded gigantic growth, it is vulnerable to interest rate and economic fluctuations. In the “GRANOLAS”, however, very different industries are represented, with six companies dominated by the health and pharmaceutical industry, which is considered to be largely independent of the economy.
In addition, “GRANOLAS” offers its shareholders reliable distributions, with an average dividend yield of around 2.5 percent per year. Some American tech giants pay no dividends at all.
One reason why these giants perform better on the stock market than the rest of the market is that they are all globally oriented and only generate a small portion of their sales in their home market. According to the Goldman analysis, the share of foreign business at “GRANOLAS” is on average 80 percent. They are largely isolated from the stagnating European economy.
In addition, the dominance of these stocks in various stock market indices also has a self-reinforcing effect. The number of passive investors has increased significantly in recent years. They invest their money in index funds, i.e. funds that replicate stock market indices such as the S&P 500 or the DAX. In the form of ETFs, passive investing is also very popular with small investors. This means that the most money automatically flows into the stocks of the index heavyweights, further strengthening their dominance.
“The big ones are getting bigger and bigger,” the “Financial Times” quotes Goldman Sachs chief equity analyst Peter Oppenheimer. He expects that the “GRANOLAS” will represent “almost the entire” combined sales growth of all companies included in the Stoxx Europe 600 in the next five years.