This column is searching for high-yield candidates among what we have termed ‘the venerable superstars’ of the US equity markets. For instance, as discussed last week, the industrials conglomerate 3M (US:MMM) looks a viable runner. However, it seems sensible to pause and ask, is the US equity market serially overvalued?
If the answer is ‘yes’, it makes the task more difficult; perhaps not even worth the effort. After all, if the superior returns that US shares have provided for more than 10 years now are mostly about a cyclical swing prolonged by investors’ collective infatuation with America’s hegemonic tech stocks then, at some unpredictable point, the sentiment will shrivel, momentum will shift and share prices across the board will suffer. History tells us that.
Superficially, the swing theory looks plausible. Taking as an arbitrary starting point 1 January 2000 – and assuming returns from both markets are measured in sterling – the S&P 500 index of major US companies has risen 265 per cent compared with a paltry 28 per cent rise for its UK equivalent, the FTSE All-Share. That scale of outperformance looks unreal – surely the UK economy and its major companies aren’t that bad? Add in the contribution of dividends and total returns for the two indices – starting from January 2002, the earliest date with total-return data for both indices – become 530 per cent for the S&P versus 251 per cent for the All-Share; narrower, but still a chasm.