Xenophobia is becoming a profitable investing strategy on the U.S. stock market.
As overseas economies sputter, investors in U.S. equities have increasingly turned to stocks with little or no exposure to foreign sales – and have been rewarded, researchers at Thomson Reuters found.
The researchers pulled together a "Sold in the USA" model portfolio, composed of S&P 500 stocks that derive 95 per cent or more of their revenues from the United States. They found that the portfolio handily outperformed the overall index during both the past 12 months and the past 24 months. Over the past two years, total returns (including dividends) for the model portfolio were 29 per cent, compared with 21 per cent for the S&P 500.
The notion of a stick-to-the-U.S. strategy as a winning stock-market proposition would have seemed preposterous even a year or two ago, when overseas economies, particularly in the emerging markets, still looked like the key drivers of global growth – and with good reason.
Foreign sales have driven much of the gains in the U.S. stock market over the past decade. More than 40 per cent of S&P 500 revenues were derived from outside the United States last year, compared with less than 30 per cent in 2002. When U.S. markets were floundering and the U.S. dollar was sinking in the aftermath of the financial crisis, investment strategists routinely trumpeted foreign sales as a crucial lifeline for many U.S. businesses – and their stocks.
But the tables have turned. As risk grows overseas, companies that stick to their knitting close to home have taken on a new shine.
Thomson Reuters noted that the Sold in the USA portfolio has outperformed despite what would seem to be an unattractive sector mix. The portfolio has only a 2 per cent weighting in technology stocks, and more than 30 per cent in the volatile financial sector. It excludes such high-fliers as Apple Inc. (up 44 per cent this year) and Amazon.com Inc. (up 37 per cent).
But some of the sectors that are strongly represented on the Sold in the USA list – telecoms, utilities, financials – are also historically strong dividend-payers. The 20 biggest stocks on the model portfolio have an average dividend yield of 3.2 per cent, compared with the S&P 500's yield of 2.1 per cent. It would seem that the Sold-in-the-USA play may coincide with investors' shift toward dividend investing – and, in turn, those dividends have contributed considerably to the strong total returns.
20 Biggest Stocks in the Sold in the USA Portfolio:
AT&T Inc.
Wells Fargo Co.
Verizon Communications Inc.
Comcast Corp.
Altria Group Inc.
US Bancorp
CVS Caremark Corp.
UnitedHealth Group Inc.
Union Pacific Corp.
Simon Property Group Inc.
Target Corp.
Southern Co.
Lowe's Cos. Inc.
PNC Financial Services
Exelon Corp.
Time Warner Cable Inc.
Lockheed Martin Corp.
Nextera Energy Inc.
Travelers Cos. Inc.
ACE Ltd.