How to set up your investment portfolio for 2024? These titles cannot be missed

As you all know we are in the midst of a bull market.
A bull market brings with it a mix of optimism, excitement and exuberance.
As well as a sense of unease that can often prevail over joy.
Sometimes we wait for the cancellation to be able to enter the market and instead the cancellation never arrives.
Those who are sitting on 2023-2024 earnings are wondering whether it is time to take profits and exit the market, and those who hold excess cash are always anxious and alternately feeling FOMO (Fear of Missing Out).
you stay out of a market that continues to rise) and FOLO (Fear of Losing Out = fear of losing something if you enter now at the market highs).
The S&P 500 is up about 40% from its October 2022 lows, while tech-related “Magnificent 7” stocks are up nearly 140% on average over the same period.
Addressing this problem (to invest or not now that we are at market highs) requires a strong focus on strategy and tactics.
However, even now, for 2024 I believe investors should have a primary allocation of their equity portfolio primarily to large-cap US stocks.
But we certainly shouldn't disdain the main European stock lists, which must still be part of our portfolio for the next 12 months.
Positioning in European equities with ETFs on the Stoxx50 and Stoxx 600 may be useful, for example: iShares Core EURO STOXX 50 UCITS ETF EUR (Acc) ISIN IE00B53L3W79Lyxor Core STOXX Europe 600 (DR) UCITS ETF (Acc) ISIN LU0908500753) However As the future of many internationally oriented portfolios increasingly depends on the developments of just a handful of high-value companies, US large caps should represent one of their building blocks, stocks that investors should always keep in their portfolios.
On the "magnificent Seven" you can read one of my recent articles published on Money.it Premium entitled "Shares: is the bubble about to burst? No (and I'll explain why)”.
Here are some thoughts for managing your stock portfolio in 2024.
Why should large-cap U.S.
stocks make up a substantial portion of the stock allocations in your portfolio? US technology companies are leading the artificial intelligence revolution.
It is obvious that generative AI will be the growth theme of the decade and, according to UBS estimates, the revenues of AI companies will each grow by around 70% per year until 2027.
More recently, the excellent fourth quarter results and indications on future quarters from Nvidia indicate overall solid spending trends for all companies linked to AI infrastructures given that in every industrial sector companies will have to face growing requests for products linked to generative intelligence, and this in every field of human existence, from the healthcare sector to the automotive sector, from the cybersecurity sector to the telecommunications sector and so on.
To estimate the industrial development of the turnover of AI-related companies for the next three years we must observe Nvidia as a "benchmark" company in this sector, and the press conference of CEO Huang during the presentation of the results a few days ago was enlightening: we are only at the beginning of the technological era linked to generative intelligence, the market of generative algorithms such as ChatGPT has considerable prospects ahead, and it will take a long time before it becomes a "mature" market, i.e.
a market in which the number of players at overall will be so high as to compress profit margins due to high competition.
For now, therefore, those who are market leaders (META, MSFT or NVDA) remain leaders and will continue to make tons of profits for a long time.
In 2014 it was around 110 dollars, while in February 2024 we are at 222 dollars per share, a sign that the upward trend of the last 10 years has been healthy as it is supported by company profits.
With such a competitive advantage (whoever is the first to enter into a technological novelty tends to be leaders over time) the largest operators today are already ready to grow even more.
Last year's earnings of the Magnificent 7 (AAPL, META, NVDA, GOOG, AMZN, MSFT, TSLA) were already around $340 billion – only slightly lower than the $367 billion earned by all Swiss and British companies in the SMI and FTSE 100 indexes – and this year's earnings could rise by a further 20% or more.
In my opinion, investors cannot afford not to have at least some exposure to AI.
It is therefore obvious that AI-related software and semiconductor manufacturers offer the best way to obtain profits in your business.
portfolio in the short and medium term.
The United States offers a wide range of investment opportunities like few other countries.
But beyond AI-related companies, in general we can say that US large caps offer a broader pool of investable stocks than any other region, accounting for 63% of global stock market capitalization based on MSCI data (Morgan Stanley Capital International is a financial services company that markets research and analysis tools to institutional investors).
Consider that the S&P 500 index alone capitalizes today at 44 trillion dollars while the local FTSE MIB index does not reach 800 billion dollars.
A healthy allocation to US equities provides exposure to businesses operating in the US domestic market of resilient consumers, consumers who have resisted even the Fed's restrictive monetary policies of 2022-2023 (aggregate US consumption amounts to approximately $19 trillion per year).
year) but you need to invest in the US indices because they contain companies that are the largest multinationals globally (around 35% of the sales of the companies in the S&P 500 basket are generated outside the United States through exports and de-localization of production).
The US stock market is also a key destination for technology companies looking to raise capital.
It is the market that offers the most liquidity even in the secondary market, once the IPO has been successfully concluded.
For example, according to data from PitchBook, a very popular financial information platform in the USA, generative artificial intelligence startups raised around 27 billion dollars in 2023, of which around 18 billion dollars came from companies launched by Amazon, Microsoft and Google .
Then there is another consideration to make: the solidity of the rally in US stock indices in the long term.
In fact, if we look at the performances of the S&P 500 compared to other global stock indices, we can only record a record of success in the last 15-20 years.
Between March 2009 and the end of January 2024, US stocks in the S&P 500 index gained 700%, compared to 210% for international ex-US stocks (I made a very simple comparison between the S&P 500 index in USD and the MSCI indices ex-US always denominated in USD).
Profit-driven growth, and therefore not irrational growth.
In fact, if we narrow the observation period from 2014 to 2024 and take into consideration the EPS earnings per share of the S&P 500 index that Bloomberg allows me to calculate, we will notice that in just 10 years the EPS doubles from 110USD to over 220 USD per share.
From the EPS graph of the S&P 500 index that you find in the Bloomberg table below, you can in fact see the intensity of the growth in the profitability of American companies.
The performance differential between American stock indices and European stock indices is therefore supported above all by the growth in profits of US companies.
Let's take another example with a longer time horizon.
From March 2009 to December 2023, cumulative earnings of the S&P 500 basket of companies grew by approximately 300%, compared to 80% for the European Stoxx 600 index and 30% for the MSCI Emerging Markets index (data provided by UBS ).
This shows that US companies can deliver very competitive investor outcomes compared to European or Asian stock markets over the long term.
Of course, the US market is overheated at the moment, but the reversal will be an opportunity for further entry and an increase in the share of equity risk in your portfolio.
Overall, US equity valuations are higher than other regions.
The S&P 500 trades on a forward price-to-earnings (P/E) ratio of more than 22.8 times.
You can see the trend of the index's P/E over time in the Bloomberg chart at the end of this article.
Part of this premium is driven by the technology sector, which represents 30% of the US market versus the 13% average weight in other stock indexes globally, excluding the US.
If we look at US valuations of the “old economy” excluding the technology sector, they may still appear relatively high at 18x P/E, but this is an appropriate level because we live in the context of robust US growth, rising inflation decline and a strong job market.
As already highlighted in the macro-economic data of the last few weeks, the United States incredibly reports an unemployment rate of around 3.6%, despite the Fed's ferociously bullish monetary policy over the last 24 months.
In summary, investors who are comfortable with equity risk need to optimize their exposure to technology and, more broadly, US large caps in 2024.
This means increasing their allocation to the US and, if necessary, appropriately diversifying across stocks “growth” and “value” stocks.
There are many income-accumulating ETFs that can help you do this, both for the S&P 500 Index and the Nasdaq.
For example: iShares Core S&P 500 UCITS ETF (Acc) ISIN IE00B5BMR087 Ticker CSSPX iShares Nasdaq 100 UCITS ETF (Acc) ISIN IE00B53SZB19 Ticker CSNDX And, for those who prefer to invest in the "old US economy", i.e.
in "value" stocks, here is a excellent ETF on the Dow Jones, always accumulating income: iShares DJ Industrial Average UCITS ETF (Acc) ISIN IE00B53L4350 Ticker SXRU Currently located at 22.8x – red horizontal line – the index is not particularly expensive, given that we are still very far from 30x peak reached on 04.30.2021 – white line.
Note also that historically every time the index reached a P/E of 16x (green horizontal line in the graph) it constituted an opportunity for notable rebounds, with the exception of the end of 2008 when the P/E reached an exceptional value of 10x .
But this is the period relating to the Lehman Bros crisis.
DISCLAIMER The information and considerations contained in this article should not be used as the sole or primary support on which to make investment decisions.
The reader retains full freedom in his own investment choices and full responsibility in making them, since he alone knows his risk propensity and his time horizon.
The information contained in the article is provided for informational purposes only and its disclosure does not constitute and should not be considered an offer or solicitation to public savings.