A couple of weeks ago we highlighted that seven companies have driven the S&P 500 so far this year, and that if you adjust the index so that it doesn’t include these businesses, overall returns drop from around 12% to around 2.5%.

Here are the returns of those seven companies:

Wow!

Where this gets interesting from our perspective is how these companies impact the Vanguard LifeStrategy funds that we typically recommend for our ‘traditional’ holdings.

Vanguard’s highest risk LifeStrategy fund, which they call LifeStrategy 100% and we refer to as a Level 5 investment (on a scale of 1 to 5, with 5 being high) is a ‘passive, tracker’. This means the stock selection is set by a computer based on certain parameters, including owning more of the world’s largest companies. This means that 12.5% of the fund is invested in the seven companies above.  

Their LifeStrategy 60% fund – we call that Level 3 – has a 7.3% weighting to the same companies.

If you combine the returns above and divide by seven, the average comes out at 127%. LifeStrategy doesn’t work quite like that – that’s a blog for a different day – but if you hold between 7.3% and 12.5% of your investment in seven companies with an average return in 2023 of 127%, then it doesn’t really matter what the other holdings do, performance is going to look good.

Past performance is no guide to the future, and who knows if these businesses will continue their upward trajectories or come crashing back down. The uncertainty of what comes next is part of the fun of investing!