HSBC has compiled two lists of 50 shares that it reckons you can buy and hold, and hold, and hold....
Back in the 1960s and 1970s, the 'Nifty Fifty' were 50 large American companies whose shares were regarded as solid, dependable, low-risk growth stocks with stable earnings. Companies like Coca-Cola (NYSE: KO), GE (NYSE: GE), Procter & Gamble (NYSE: PG), and Johnson & Johnson (NYSE: JNJ), in other words: the bedrock of the American economy.
The proposition for investors was simple. These were companies that were built to last, well-positioned for growth, and well-managed -- so buy a broad cross-section of the Nifty Fifty, hold for the long term, and forget about fancy stock picking.
Over 40 years on, investment strategists at HSBC (LSE: HSBA) have now revisited the Nifty Fifty notion -- with a twist. What would a global Nifty Fifty look like, they wondered? And -- of even more interest to UK investors -- a European Nifty Fifty?
The global Nifty Fifty includes several members of the original (and American-only) Nifty Fifty -- companies such as Coca-Cola, Johnson & Johnson, and Caterpillar (NYSE: CAT). It also includes American companies that were relative minnows when the original Nifty Fifty were formulated -- Wal-Mart Stores (NYSE: WMT), for example. There are also some that didn't exist at all back then: Microsoft (Nasdaq: MSFT), Cisco Systems (Nasdaq: CSCO) and Oracle (Nasdaq: ORCL). Of the complete global listing, 24 companies are American, 10 are Asian, and 16 are European. And of the European companies, six are British.
Nifty Brits
So which are the British companies, judged significant enough to be players on a global stage of just 50 shares? Five don't surprise me: BP (LSE: BP); Vodafone (LSE: VOD); Australian-based but British-listed mining giant BHP Billiton (LSE: BLT); drinks company Diageo (LSE: DGE); and Tesco (LSE: TSCO).
The sixth -- Rolls-Royce (LSE: RR) -- did surprise me: at a market capitalisation of just £5 billion, it's less than a third of the size of the next smallest UK global nifty Fifty member company, Diageo. But, as super-investor Warren Buffet would say, it's got a deep moat. There aren't many players in the world’s aero engine industry, and you need deep pockets to join them.
The European Nifty adds to the roll-call of British companies. The six companies above are joined by Royal Dutch Shell (LSE: RDSB); Smiths Group (LSE: SMIN); British American Tobacco (LSE: BATS); household products manufacturer Reckitt Benckiser (LSE: RB), Unilever (LSE: ULVR); advertising giant WPP (LSE: WPP); and National Grid (LSE: NG). Again, perhaps only Smiths Group is a surprise -- and, as with Rolls-Royce, the company yet again has a deep moat, focusing on advanced engineering and manufacturing in sectors like aerospace, medical devices, and sealing solutions.
One decision stocks
Will these dozen British companies -- and the broader global and European Nifty Fifties to which they belong -- also become so-called 'one decision' stocks, where the only decision an investor had to make was 'buy'?
I hope not. For the original Nifty Fifty fell out of favour as an investing strategy, for precisely the reason that its member companies had become 'one decision' stocks. With investors piling into the Nifty Fifty, ignoring any fundamentals, valuations rose to dizzying heights, ultimately carrying the rest of the market with it.
It was an early precursor to the dot com boom of the late 1990s, and ended just as messily. And, as the party ended, so did the concept of the Nifty Fifty. Most of the individual companies went on to great things -- but on their own merits, and not as members of a group of companies whose shares you bought just because everyone else was.
Malcolm Wheatley owns shares in BP, and has Tesco and Unilever on his watch list.
