Investment letters

In the ever-evolving landscape of the American economy the “winner takes all” concept has been a subject of considerable debate. Although the number of companies in the US has grown by 50% over the past 30 years, their growth has not been equal. This can be clearly seen by the so-called ‘Magnificent Seven’, which dominate the US market and have driven many of 2023’s investment-focused headlines. As figure 1 illustrates, since the 1930s the share of the US economy of the top 0.1% of companies has risen to approximately 87%, up from 47%.

However, there are many other dynamic companies to be found in the US market and in Comgest’s US Equities strategy. For Comgest, a key ‘quality’ characteristic of our portfolio companies is visible growth – their business models are strong and stable with competitive advantages and brand recognition. One way to determine if a company meets our rigorous criteria is via our quality growth S-curve, which allows us to view companies in terms of their maturity and competitive risk, which lowers as a company matures. Over our years of research, three leading franchises – Eli Lilly, Microsoft, and Cintas – have long stood strong against new market entrants.

NOT ALL GROWTH IS CREATED EQUAL

Within the US market, some companies experience exponential success and dominate their industries while others struggle to gain a foothold. Factors such as innovation, adaptability, and market dynamics play crucial roles in determining the trajectory of a business.

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