Category: News

Growth of NVIDIA

Without doubt one of the success stories of the last few years has been the computing powerhouse that is NVIDIA. This has been down to its firm hold at the forefront of the AI tech boom.

Here are a few stats for NVIDIA  –

  • 8th company to hit a one trillion USD valuation
  • Quickest company to go from one trillion to two trillion USD valuation, only 180 days
  • Revenue for 2024 is 126% higher than 2023 at $60.92 billion
  • Stock price up of 3,000% in the last 5 years

NVIDIA experienced more remarkable growth in 2024, driven largely by its advancements in AI and data center technologies. The company’s revenue for the fourth quarter of fiscal year 2024 reached $22.1 billion, which is a 22% increase from the previous quarter and a 265% rise compared to the same period in the prior year. This surge in revenue reflects the robust demand for NVIDIA’s AI and data center products​ (Nvidia Investor Relations)​​ (Nvidia Investor Relations)​.

One of the key contributors to NVIDIA’s growth is its data center segment, which generated $18.4 billion in revenue in Q4 2024, up 27% from the previous quarter and a significant 409% year-over-year increase. This growth was fueled by the increasing adoption of NVIDIA’s AI-driven solutions and partnerships with major tech companies like Amazon Web Services and initiatives in healthcare and automotive sectors​ (Nvidia Investor Relations)​.

In addition to its financial success, NVIDIA’s stock performance has also been impressive. The company’s stock price saw substantial gains, reflecting investor confidence in its growth trajectory and future potential. Analysts predict continued strong performance, driven by ongoing innovations in AI, gaming, and professional visualization​ (Nvidia Investor Relations)​.

Overall, NVIDIA’s strategic investments in AI technology and expanding its product offerings across various sectors have positioned it for continued success and growth in the coming years​ (Nvidia Investor Relations)​​ (Nvidia Investor Relations)​.

With huge market support and a very positive view of senior company officials it will be very interesting to see just how far NVIDIA can with only Microsoft and Apple respectively currently having a higher market cap than the AI behemoth.

All facts and figures were correct at time of writing.

FTSE Hitting New Highs

With the FTSE hitting new highs as of the 22nd April you would be forgiven for thinking the overall economy was absolutely booming. As we have seen in the quarterly growth numbers in the UK, the recovery since COVID has been slow and stuttering at best, with 0.1% growth per quarter being considered ‘success’.

As many forecasters have been saying for a while, are global investors finally starting to take notice of the cheaper UK stocks available (when compared to some of their US equivalents, think Exxon Vs. BP) or are there other factors at play?

Whilst we certainly cannot doubt that many of the FTSE 100 business’ are very competitive and well run one of their biggest benefits (arguably) is the fact that a good proportion of their profits are earned outside of the UK. According to the LSEG and estimate 80% of FTSE 100 companies revenues come from overseas.

This often means a good portion of their earnings come in USD which given its current strength against GBP leaves these overseas earnings worth more than they typically would be making exports more competitive notably in the service sector which has seen growth levels 9 times higher than than that of UK goods according to the FT 

Overall it is certainly a good thing to see the FTSE 100 exceeding its all time highs however only time will tell if the economic recovery will continue and these all time highs will become a more regular thing in the coming 12-18 months. May be worth keeping the champagne on ice for now and see where the land lies towards the end of the year.

All time highs!

With the S&P500, Nikkei 225 and a majority of the other developed world stock markets hitting or near to all time highs it is essential to consider what is going to happen over the coming 6-12 months following on from these new milestones. Are we likely to see some drop off or can there continue to be ongoing market positivity as interest rates start to come down by the end of the year?

When the stock market hits an all-time high, it can lead to various reactions and outcomes, depending on several factors:

  1. Consolidation or Correction: After reaching an all-time high, the market may consolidate its gains by trading sideways for a period or experience a correction where prices decrease. This correction could be minor or significant, depending on various factors such as economic data, earnings reports, geopolitical events, or changes in monetary policy.
  2. Profit-taking: Investors may decide to take profits off the table after a market reaches an all-time high. This selling pressure can lead to a short-term pullback in prices as investors lock in their gains.
  3. Increased Confidence: All-time highs can boost investor confidence in the strength of the market and the economy. This confidence can lead to increased investment activity as investors seek to capitalize on the upward momentum.
  4. Media Attention: Market all-time highs often attract media attention, which can further fuel investor sentiment. Positive media coverage may attract more investors to the market, contributing to further price increases.
  5. Caution and Volatility: Some investors may become cautious after a market reaches an all-time high, fearing a potential market downturn. This caution can lead to increased volatility as market participants assess the sustainability of the upward trend.
  6. Sector Rotation: After an all-time high, investors may engage in sector rotation, reallocating their investments from sectors that have performed well to those that have underperformed. This rotation can impact the performance of different sectors within the market.
  7. Central Bank Response: Central banks may respond to market all-time highs by adjusting monetary policy. For example, if central banks perceive the market’s high valuations as a risk to financial stability, they may consider tightening monetary policy to prevent overheating.

Overall, while reaching an all-time high can be a positive milestone for the market, it’s essential to recognize that market dynamics are complex, and various factors can influence market behavior in the aftermath of such milestones. Investors should maintain a diversified portfolio and stay informed about economic and market developments to navigate the post-all-time high environment effectively.

Whilst not trying to sound too much like a broken record, diversification is essential. It is clear that certain sectors of the market have done extremely well in the last 12 months, tech stocks mainly and especially NVIDIA. But it is more important than ever to ensure your portfolio is weighted in a variety of different and differing sectors to ensure should one area start to stumble other areas can help pick up the slack.

The Magnificent Seven

Many apologies for those of you looking for a film review on a classic Western film, I only post those on a Sunday afternoon. This post on the “The Magnificent Seven” refers to a concept in finance where seven mega-cap stocks, including Apple, Amazon, Microsoft, Facebook, Alphabet (Google), NVIDIA and Tesla, have had a significant impact on the performance of the S&P 500 index. These companies, with their dominant positions in various sectors such as technology, consumer services, and electric vehicles, have driven a substantial portion of the index’s gains in recent years.

Here is a graph showing the Magnificent 7’s out sized performance relative to the rest of the S&P 500 in 2023 if you invested $1 in January 2023 –

Their influence on the S&P 500 can be seen in several ways:

  1. Market Capitalization: The combined market capitalization of these seven companies comprises a substantial portion of the total market capitalization of the S&P 500 index. As their stock prices rise, they have a disproportionate impact on the index’s performance.
  2. Index Performance: The performance of these companies often dictates the overall direction of the S&P 500. Strong earnings reports or innovative product launches from these companies can lead to significant gains in the index, while setbacks or negative news can trigger downturns.
  3. Investor Sentiment: Investor sentiment towards these seven companies often spills over into broader market sentiment. Positive news or performance from these companies can boost investor confidence, leading to increased buying activity across the market.
  4. Tech Dominance: As technology becomes increasingly integral to various aspects of modern life, the dominance of tech giants like Apple, Amazon, Microsoft, Facebook, Google, Netflix, and Tesla reinforces their influence on the broader market. Changes in consumer behavior, technological advancements, and regulatory developments affecting these companies can ripple through the entire market.
  5. Sectoral Weighting: Due to their substantial market capitalization, these companies have a significant weighting in sectors such as technology and consumer discretionary within the S&P 500. Consequently, fluctuations in their stock prices can impact the performance of these sectors and, by extension, the overall index.

Overall, the Magnificent Seven’s influence on the S&P 500 underscores the increasing concentration of market gains in a handful of large-cap stocks. While this concentration can amplify gains during bull markets, it also raises concerns about market volatility and systemic risks associated with the dependence on a select few companies. Investors and analysts closely monitor the performance of these companies as indicators of broader market trends and sentiment.

Overall it is clear that  the primary stock market index in the US is quite heavily reliant on a relative handful of mega cap stocks that have been responsible for a huge amount of the returns over the last few years.

* This post is for informational purposes only and should not be used as a recommendation

The 8th Wonder of the World

Whilst Einstein was certainly right about a vast number of things, one of the statements he was arguably most right about was that compound interest is the 8th wonder of the world.

Just to build on one of the previous posts regarding pensions for children. See below assuming you put £1,000 into a junior ISA and added £1,000 per year, then grew it at 7% per annum –

  • Initial balance – £1,000.00
  • Additional deposits – £18,000.00 (£1,000 annually)
  • Annual assumed rate of return – 7%
  • Value after 18 years – £40,781.43
  • Interest Earned – £21,781.43
  • Time-weighted return – 251.25%

I do tend to talk a lot about compound interest, primarily because the results speak for themselves. With a relatively small amount of money per year and a not unachievable annual growth rate (the S&P 500 has averaged around 10% per year over 50 years) you have effectively accrued the deposit on a flat by the time your child is 18.

To take this even further, lets say you took that £40,781.43 and placed it into a pension once your child turned 18. If you made no further additions and continued to grow the pot at 7% per annum until your child turned 65 the results are as follows –

  • Initial Balance – £40,781.43
  • Annual assumed rate of return – 7%
  • Value after 47 years – £1,084,276.42
  • Interest Earned – £1,043,494.99
  • Time-weighted return – 2558.75%

The results are quite astounding with a total investment of £19,000 over the first 18 years of their life you could provide them with a pension pot worth £1,084,276.42. Whilst £1m in the future wont be worth £1m in today’s money it certainly does show the power of compound interest.

*Disclaimer* – I have attempted to make the above figures as accurate as possible but with any investment, no rate of return can be guaranteed and any projections are for guidance and illustrative purposes only.

Do babies need pensions?

Investing in a Junior SIPP for Your Child’s Retirement: A Gift That Keeps on Giving

As parents, we constantly think about how to ensure a bright future for our children. We consider education, health, and the values we instill in them. But how often do we think about their financial security, especially as far into the future as retirement? It may seem odd to ponder retirement planning for someone who has barely started school, but in the realm of financial planning, starting a pension for your child can be one of the most impactful decisions you make. Enter the Junior Self-Invested Personal Pension (SIPP).

What is a Junior SIPP?

A Junior SIPP is a type of pension for children that allows parents, guardians, or even grandparents to kickstart retirement savings on behalf of their young ones. Just like an adult SIPP, it is a personal pension scheme that offers tax relief and allows for a range of investment choices, from stocks and shares to government bonds and more.

The Power of Compound Interest

The primary advantage of starting a Junior SIPP lies in the magic of compound interest. Albert Einstein famously called compound interest the “eighth wonder of the world,” and for good reason. By investing early, even small amounts can grow significantly over the decades, thanks to interest accumulating on both the initial investment and the interest that has been added over time. If you were to put £100 per month into a Junior SIPP and grow it at 7% per annum for 18 years that grows to £43,654.76. If you then take that £43,654.76 and grow it at 7% per annum until your child reaches 65 it grows to £1,049,709.57 without any more contributions. Whilst inflation will clearly mean £1m in the future is not worth £1m today, it certainly is not a bad place to start!

Tax Benefits

Contributions to a Junior SIPP are topped up by 20% tax relief. For example, for every £80 you put in, the government adds another £20, up to an annual limit of £2,880, which becomes £3,600 with tax relief. This incentive not only boosts the amount invested but also encourages a culture of saving from an early age.

A Lesson in Financial Responsibility

Investing in a Junior SIPP for your child is not just about the financial benefits; it’s also a valuable educational tool. As they grow older, involving them in the management of their SIPP can teach them about investing, the importance of saving for the future, and financial responsibility. It’s a practical way to introduce them to financial concepts and the importance of planning for the long term.

Long-Term Security

Starting a pension for your child can provide them with a financial safety net for the future. In an age of uncertain social security benefits and the potential for future economic instability, a Junior SIPP can be a pillar of financial security for your child as they approach retirement.

How to Get Started

Getting started with a Junior SIPP is straightforward. Most financial institutions that offer adult SIPPs also offer the junior version. It involves choosing a provider, setting up the account, and then making contributions. The choice of investments can range from low-risk bonds to more volatile stocks, depending on your risk tolerance and the investment period you’re looking at.

Conclusion

Investing in a Junior SIPP for your child is a profound way to show love and foresight. It’s a gift that not only grows in value but also instills in them the principles of financial planning and responsibility. As they step into their future, they’ll have the solid foundation of a pension that was started decades earlier, providing them with options and security in their retirement years. In the world of financial gifts, a Junior SIPP is undoubtedly one that keeps on giving, paving the way for a secure and prosperous future for your child.

US Vs. European Stocks

 

Investing in US stocks versus European stocks involves considering various factors, including economic conditions, market performance, regulatory environments, currency risk, and sector exposure. Here’s a comparison highlighting some key aspects of investing in each market:

  1. Market Size and Diversity:
    • US Stock Market: The US stock market is the largest and most diverse in the world, comprising thousands of publicly traded companies across various sectors, including technology, healthcare, finance, consumer goods, and energy.
    • European Stock Market: The European stock market is diverse but generally smaller compared to the US market. It includes stock exchanges in countries such as the UK, Germany, France, Switzerland, and others. European stocks represent a mix of industries, including finance, automotive, manufacturing, healthcare, and consumer goods.
  2. Economic Conditions:
    • US Economy: The US economy is one of the largest and most influential globally, with robust economic indicators and policies that often impact global markets.
    • European Economy: The European economy is significant but fragmented, consisting of multiple countries with varying economic conditions, regulatory frameworks, and fiscal policies. Economic performance in Europe can be influenced by factors such as Brexit, Eurozone stability, and geopolitical tensions.
  3. Currency Risk:
    • US Stocks: Investing in US stocks exposes investors to currency risk if they hold assets denominated in US dollars. Fluctuations in exchange rates between the US dollar and their home currency can impact returns for international investors.
    • European Stocks: Similarly, investing in European stocks exposes investors to currency risk if they hold assets denominated in euros or other local currencies. Currency fluctuations, especially concerning Eurozone stability and Brexit-related developments, can affect returns for international investors.
  4. Regulatory Environment:
    • US Stock Market: The US stock market is regulated by the Securities and Exchange Commission (SEC), which imposes rules and regulations to protect investors and maintain market integrity.
    • European Stock Market: The European stock market is regulated by various national authorities and supranational bodies such as the European Securities and Markets Authority (ESMA), which oversee financial markets and ensure compliance with regulations across the European Union.
  5. Sector Exposure:
    • US Stocks: The US market offers exposure to a wide range of sectors, including technology, healthcare, finance, consumer discretionary, and industrials. It is known for its innovation-driven technology companies, such as FAANG stocks (Facebook, Apple, Amazon, Netflix, Google).
    • European Stocks: European stocks encompass various sectors, including finance (e.g., banking and insurance), automotive, manufacturing, healthcare, consumer goods, and energy. European companies may have a different sectoral composition compared to their US counterparts, with strengths in industries like luxury goods, automotive manufacturing, and pharmaceuticals.
  6. Volatility and Risk:
    • US Stocks: Historically, US stocks have experienced periods of volatility but have shown resilience over the long term, delivering solid returns for investors. The US market is known for its dynamic and innovative companies, which can lead to both opportunities and risks.
    • European Stocks: European stocks can also be volatile, influenced by factors such as economic uncertainties, political developments, regulatory changes, and global market conditions. Brexit-related uncertainties, Eurozone stability concerns, and geopolitical tensions can impact European stock performance.

Ultimately, the choice between investing in US or European stocks depends on factors such as investment objectives, risk tolerance, portfolio diversification, and market outlook. Many investors choose to diversify their portfolios by investing in both US and European stocks to mitigate specific risks associated with each market and capitalize on opportunities in different regions.

Active Vs. Passive

This topic is as old as retail investing itself. Does an actively managed fund really deliver the premium returns that warrant the additional expense.

To start on a negative note for active investing here is an article from the New York Times which points out that in the five years to 2022 not one of 2,132 mutual funds beat the market consistently for a five year period.

Despite the above it is essential to weigh up the pro’s and cons –

Pro’s and Con’s of Active Investing

Passive Investing Advantages

Some of the key benefits of passive investing are:

  • Ultra-low fees: No one picks stocks, so oversight is much less expensive. Passive funds simply follow the index they use as their benchmark
  • Transparency: It’s always clear which assets are in an index fund.
  • Tax efficiency: Their buy-and-hold strategy doesn’t normally result in capital gains taxes due

Passive Investing Disadvantages

Proponents of active investing would say that passive strategies have these weaknesses:

  • Too limited: Passive funds are limited to a specific index or predetermined set of investments with little to no variance; thus, investors are locked into those holdings, no matter what happens in the market.
  • Small returns: By definition, passive funds will pretty much never beat the market, even during times of turmoil, as their core holdings are locked in to track the market. Sometimes, a passive fund may beat the market by a little, but it will never post the significant returns active managers crave unless the market itself booms.
  • Reliance on others: Because passive investors generally rely on fund managers to make decisions, they don’t specifically get to say in what they’re invested in.

Pro’s and Con’s of Active Investing

There are also several strengths and weaknesses of active investing.

Active Investing Advantages

Advantages to active investing:

  • Flexibility: Active managers aren’t required to follow a specific index. They can buy those “diamond in the rough” stocks they believe they’ve found.
  • Hedging: Active managers can also hedge their bets using various techniques often not available in passive strategies such as short selling.
  • Tax management: Even though this strategy could trigger a capital gains tax, advisors can tailor tax management strategies to individual investors, such as by selling investments that are losing money to offset the taxes on the big winners.

Active Investing Disadvantages

But active strategies have these shortcomings:

  • Cost: The average expense ratio at 0.68% for an actively managed equity fund, compared to only 0.06% for the average passive equity fund.
  • Active risk: Active managers are free to buy any investment they believe meets their criteria
  • Management risk: Fund managers are human, so they can make costly investing mistakes.

Listing the above I think their are other things to consider on a more localized basis. For example the stock markets of India and the US are hugely different, with the US being much more mature as a stock market with many decades of existence, high amounts of regulation and oversight and a huge investor base. Compare that to India whose main NSE index is only 32 years old and the picture is quite different. If you were looking to put a significant investment into Indian stocks I think it could strongly be argued that using an active manager with ‘boots on the ground’ and a team of analysts reviewing individual stocks makes a lot more sense than putting it into a tracker.

Ultimately it depends on the individual and whether or not they see value in a team of professionals constantly reviewing a fund or whether they feel ‘Mr. Market’ is the best person to help. Furthermore it always make sense to sit down with a financial professional to run through your own personal thoughts on this and review the options that fit your risk profile.

Running With Bulls

With the S&P 500 hitting an all time high last week capping off a stellar six month period for the index, it does leave many wondering will the bull run continue.

In 2023, 62% of the S&P 500’s 26.29% total return was produced by what are referred to as “The Magnificent Seven” stocks – Amazon, Alphabet (Google), Apple, Meta (Facebook), Microsoft, Nvidia, and Tesla. That is a very small band of stocks doing a gargantuan amount of heavy lifting. Whilst the largest of these stocks have a higher market cap than the GDP of the vast majority of countries, they still continue to add significant chunks of value to their share price. Most Western governments would give up most of their castles and national parks to have even a tenth of the levels of growth these companies can have in a year!

With a US election looming and the state of the economy inevitably linked to a Presidents electoral performance, I would think Biden and his team will do everything they can to continue the strong economic performance of 2023 and bring that momentum to November 2024.

My personal view is there will be a continuation of growth in the magnificent seven although not as strong as 2023. Historically, all-time highs follow more all-time highs. The S&P 500 averages a total return of 10.9% over the next year so whilst history can’t predict the future it is certainly a solid indicator.

Interested in Interest Rates?

Unless you have been hidden in the Amazon rain forest, or perhaps achieved Elon Musk’s dream of building a colony on Mars, you can’t have failed to notice the rapid rise in interest rates over the last 18 months. With inflation raging like a toddler after a bad nights sleep, hiking interest rates was the most logical thing to do to try to get inflation back to a tolerable level.

Whilst his has been a hammer blow to mortgage holders it has been very handy for those with cash in the bank. Having had effectively no interest paid on savings since the great financial crash of 2008 it has been quite a good period for those with a healthy balance in a high interest savings account.

In terms of where it will all end, the consensus among the interest rate analysts is that they will start to come down sometime in the fourth quarter of this year. This will of course give mortgage holders a break from often cripplingly high monthly payments but will also means those with large cash balances will need to put their money to work elsewhere.

My personal view is that we are unlikely to see rates go down to near zero any time soon, or perhaps ever again. Whilst it was fantastic to be able to borrow money at a cost of next to nothing the longer term consequences of this has seen house prices sky rocket in the last decade leaving those without a deposit, or a helping hand from the bank of Mum and Dad, unable to get on the property ladder.

In short, if you are currently holding a mortgage with a high monthly payment, the pain should become more bearable sooner rather than later. Conversely if you have been enjoying a 5%+ per annum return from the safety of cash investments I think it makes a lot of sense to start planning to invest elsewhere as the free flowing 5% is likely to become more of a 2% trickle before too long.

If you are interested to know more about interest rates, please fill in your details below and one of our team will be in touch –

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