I know, I know… how unpatriotic of me. Don’t get me wrong, the ASX is a fantastic stock exchange with a fantastic array of companies in it. Over the past 100 years, the ASX200 (ASX: XJO) has delivered an average annual return (including dividends) of around 10%.
But there are several issues that we need to talk about regarding the future of the ASX, and whether our hard-earned money can be put to better use outside our shores.
The ASX is overweight with banks and miners. Out of the top ten stock on the ASX200 index, five are banks. If we take the index as a whole, financials make up 32.3%, with the second-largest sector of resources making up 18.9%. The third-largest sector (healthcare) makes up just 8.6%. By comparison, in the S&P 500 index (largest 500 companies in the USA), we have Information Technology at 21.7%, Health Care at 13.92% and Financials at 13.05% – much more balanced.
The ASX lacks disrupters. Although we have great (but relatively small) tech companies like Afterpay Touch Group Ltd (ASX: APT) and Xero Limited (ASX: XRO), I don’t see Woolworths Group Ltd (ASX: WOW) or Wesfarmers Ltd (ASX: WES) dominating the globe over the next century. Meanwhile, on the S&P 500, top companies like Walmart, Amazon and Apple are pioneers in their respective fields and all will continue to set trends around the world for many years to come.
Dividends. I wrote a piece last week on the possible downsides that the high payout ratios of ASX stocks might bring. US companies are encouraged by tax laws to keep most of their cash for internal reinvestment, whereas our tax laws encourage companies to send the cash out the door as dividends. This reduces innovation and long-term capital growth of our companies and may be the reason why Aussie success stories like Atlassian have left our shores for the US.
When I look at our ASX, I don’t see companies like Alphabet (Google), Tesla, Amazon, and Facebook who are changing the way everyone does everything. The big movers and shakers in the world economy can be found in the US for the most part (some in China), and it may be a good idea to put some money where the action is if you’re truly a long-term investor.
Cheap ASX exchange traded funds (ETFs) like the iShares S&P 500 ETF (ASX: IVV) give us the option to easily invest in the US and I personally am very tempted to pursue this avenue in my investing in the future. Sure, dividends are great, but so is investing in companies that are changing the world. Have a look and see where they are.
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Randi Zuckerberg, a former director of market development and spokeswoman for Facebook and sister to its CEO, Mark Zuckerberg, is a member of The Motley Fool's board of directors. Sebastian Bowen owns shares of Facebook and Tesla. The Motley Fool Australia's parent company Motley Fool Holdings Inc. owns shares of and recommends Facebook and Tesla. The Motley Fool Australia owns shares of and has recommended Wesfarmers Limited. The Motley Fool Australia owns shares of AFTERPAY T FPO and Xero. The Motley Fool Australia has recommended Facebook. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.