The latest market acronym has a story to tell, but it represents no easy way to riches
Matthew Lynn City columnist
We’ve had the Brics, the Fangs, and more recently the Magnificent Seven. Now Goldman Sachs has come up with a European equivalent. The “Granolas” comprises 11 of the best-performing businesses on this side of the Atlantic, and include major multinationals such as GSK, Roche, ASML, Nestlé, Novartis, Novo Nordisk, L’Oréal, LVMH, AstraZeneca, SAP and Sanofi. According to Goldman Sachs, between them they have generated returns of 65% over the last three years once dividends are included, which compares to the 64% returned by the Magnificent Seven leading US tech stocks over the same time period. If the past is any guide, expect to see a whole host of Granola funds and ETFs launched over the next few months as asset managers try to jump on the bandwagon, and retail investors look for a simple way to take a stake in the next big thing.
World-class businesses
Goldman Sachs is in fact pointing out something interesting. The US is easily beating all the major European countries for growth, and its stockmarket is outperforming all the indices on this side of the Atlantic. And yet the very best European companies are more than keeping pace with their US rivals, and on some measurements, actually beating them. If you step away from the dismal outlook for national economies, and look instead at the performance of a handful of giant corporations that, while they may have their roots in one European country or another, trade globally, then the outlook starts to look a lot better. The old continent may have its challenges, but it still has plenty of world-class businesses.
Yet there are two big problems with the Granolas hype. First, the group is very heavily skewed towards pharmaceuticals, and especially the stellar performance of Novo Nordisk, almost entirely based on its weight-loss drug. The total return for Novo Nordisk over the last five years has been a stunning 279%, and the firm has done so well that it has single-handedly rescued the Danish economy from slipping into a recession. But it is not just Novo Nordisk. The list also includes Roche, Novartis, Sanofi, GSK and AstraZeneca. Add it all up, and the list is more than 50% made up of giant pharma firms. It would be simpler just to argue that pharmaceuticals are outperforming the rest of the stockmarket, or at least keeping pace w
