U.S. Companies Dominate Many Sectors. Should They Be In Your Portfolio Too?

As the largest economy in the world, the United States is an economic powerhouse.

It attracts the attention and capital of investors across the globe. It’s not just because the U.S. is a large market of almost 330 million consumers with a high standard of living. The U.S. is home to some of the largest and most successful companies in the world, many of them with a global presence. In fact, in many sectors American firms dominate and investors looking to buy into those sectors will find it impossible to ignore these U.S.-based companies.

How big is big?

The U.S. capital markets are the deepest and most liquid in the world. That liquidity, meaning that shares can be bought and sold freely, provides investors with more choices of stocks and securities across many sectors than anywhere else. American markets also feature a regulatory framework supporting transparency and investor protection.

Just how big are they? The New York Stock Exchange (NYSE) is the largest in the world and accounts for roughly 40% of the world’s stock market capitalization. In second place is U.S.-based NASDAQ, home to some of the largest technology companies on the planet. The U.S. corporate bond market is also the world’s largest.

Sector dominance

This market heft is demonstrated in the dominance of many key sectors by U.S. companies, including sectors in demand by investors (see table this page based on the S&P Global Broad Market Index¹). Consider these:

Technology. The dominance of U.S. firms in tech is well known. In 2019, seven out of 10 of the largest technology companies in the world were American.² As the table shows, this pre-eminence is especially strong in software, with 86% of the sector in the index being U.S. owned.

Health Care. Over $7.8 trillion (USD) a year is spent on health care globally. Nearly half of that total – $3.5 trillion – is spent in the United States.³ It’s no surprise, then, that American firms hold sway in this sector too, with an especially strong presence in the Health Care Provider and Biotech areas.

Consumer Segments. With its large, affluent market and powerful brands, the United States is home to some heavy hitters providing products and services to the consumer market. U.S. companies making household products dominate their sector, and American specialty retailers hold supremacy in their space.

It’s easy to see why investors are so attracted to American investments, whether it’s for the steady performance of consumer staples or the high growth potential of technology or biotech. With their global dominance, many U.S. firms also provide global exposure for a portfolio, as they may operate or generate revenue in hundreds of countries.

Easy access

For Canadians, the most common way to access the U.S. market is through mutual funds or exchange-traded funds (ETFs). It will be obvious if you own a U.S. or North American equity fund that you have such exposure. However, what this heavy dominance in key sectors suggests is that you’ll likely have even more exposure in other funds as well. Many global funds, depending on their mandate, will likely include a high number of U.S. companies. Specialty funds that concentrate on technology, health care or financial services will also have a big American presence.

Chances are these global leaders are already working for you in your portfolio. If you’d like to understand more about your access to these sectors or the role they play in your portfolio, let’s review your investment strategy soon.

1 World Economic Forum with data from S&P. https://www.weforum.org/agenda/2020/02/dominance-american-companies-global-markets-industry/

2 Forbes Global 2000 List, Investopedia, November 2019. https://www.investopedia.com/articles/markets/030816/worlds-top-10-technology-companies-aapl-googl.asp

3 Investing in Health Care Stocks, April 2020. https://www.fool.com/investing/stock-market/market-sectors/healthcare/

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