Article Global Equity Income: Investing beyond the technology giants

In recent years, global stock markets have become increasingly dependent on a small group of very large technology companies. More recently, investor enthusiasm has narrowed even further around a single theme: artificial intelligence. This concentration matters because when portfolios rely too heavily on the same companies, sectors or investment story, they can become more vulnerable if sentiment changes. Looking beyond the technology giants may help investors access a broader range of opportunities and build greater long-term resilience.

The S&P 500 Index – the main benchmark for the US stock market - now has almost 40% of its market capitalisation in its largest 10 stocks. Market capitalisation, often shortened to market cap, is the total value of a company’s shares. In simple terms, the bigger a company’s market cap, the more influence it has on the performance of an index that is weighted by company size. This level of concentration in the S&P 500 Index has not been seen since the 1960s. It is not just a problem for funds that track the index. Even active funds, where fund managers can choose where to invest, can ‘herd’ towards the largest companies. As a result, many global funds now look alike, heavily skewed toward the same companies and sectors.

The risk to investors

This presents real risks to investors. It leaves their portfolios unbalanced. Part of the problem is that the S&P 500 index’s 10 largest companies are built around a single theme - artificial intelligence. As much as half of the market capitalisation of the S&P 500 index is in AI-related companies¹. AI may turn out to be every bit as important as its proponents promise, but staking long-term financial goals exclusively on its success is a risky strategy. Even if AI does deliver productivity gains and growth, investors also need to question the price they are paying for it – a great company can be a bad investment if expectations are too high. 

Why globally diversified portfolios may support income & growth

Investors should aim for true global diversification in their portfolios. That means bringing in other sources of potential growth: defence spending, infrastructure development, changing consumer patterns or healthcare, for example. There are also plenty of interesting companies to be found outside the US – in Asia, in Europe, even in the UK. Growth and income are widely spread across global financial markets.

On Invesco Global Equity Income Trust Plc, we are deliberately different. The investment trust structure allows us that freedom. The trust is ‘closed-ended’, which affords the investment management team more flexibility because they do not have to buy and sell shares when there are inflows or outflows as is the case with an open-ended fund. We feel no compulsion to follow the herd, investing in opportunities wherever we find them, building a portfolio that is both selective and well-diversified.

** please see the end for the full investment risks.

The importance of a balanced portfolio and risk management

We also believe that a consistent income is important in managing risks and bringing balance to a portfolio. The trust has an annual dividend target of at least 4%², though this is not guaranteed, set by the board. Here too, the investment structure is important, allowing us to stockpile income in prosperous times and draw on it during periods when companies are cutting back on dividends, which helps deliver consistency of income.

On Invesco Global Equity Income Trust, we lean into this worldwide opportunity set. Ours is a disciplined, research-led approach. This can help steer us away from pockets of over-valuation in the market, and towards opportunities that may have been neglected by investors in the pursuit of AI gains. We aim to invest with real conviction, in companies where we see long-term potential.

In a world where many global funds look increasingly alike, investors need to exercise caution. Any portfolio exposed to a single theme is vulnerable, but particularly when everyone is very excited about it. Invesco Global Equity Income Trust is deliberately different - a diverse strategy built to stand apart.