As many elements to meditate to select large cap

Surprise, surprise! On the twenty larger capitalizations of 1986, only six are still today: majors oil Exxon and BP, us conglomerate General Electric, the automaker Toyota, cigarette maker Altria and Wal-Mart, the giant of the distribution. It is apparent from a ranking by Fidelity International, which compared the composition of the MSCI World index to 20-year gap. "In my view, this ranking demonstrates that indices provide a picture of the economy at a given time," says David Ganozzi, Director of the management of the Paris Office of Fidelity. "But they tend to highlight titles that have performed in the short term and conducted major operations in capital increase of the floating (acquisitions) which mechanically maintain their weightings." However, they do only partially reflect the underlying dynamics of the economy. Japanese values, occupying a prominent place at the time, have virtually disappeared from the index for the benefit of the European societies, including the France, the Russia and the Switzerland. This result justified a certain distance from the index decision-making. Because focusing by "security" the largest values of the moment, investors take the risk of overlooking background trends.

The strategies implemented by these six leaders of yesterday and today are no less rich learning. The most immediate explanation to maintaining their leadership course lies in mergers and acquisitions. Exxon, already leader in 1986, reinforced its position thanks to the merger with Mobil in 1998, accelerating effect of domino connections in Europe. The following year, Wal-Mart was in turn defensive mergers in the European distribution when it bought out English Asda.

So, the race for external growth is not the only explanation.

Oil values constitute a case apart. As summarised in Jacques Burlot, managing in future Finance, "despite the strong variations in the price of a barrel between 1986 and 2006, their weight remained constant in the indices, mainly because the sector relies on reserves still selling and value as the depletion of this energy source." "In the course of the next few years, the evolution of the oil in the indices depend however, their capacity to renew these reserves and diversify their sources of income".

The managers also isolate the case of Altria, which was strongly shaken by tobacco trial for then rebounding strongly after amicable agreements concluded with the complainants.

Adaptive capacity

Thomas de Saint - Seine and Maxime Botti, managers in Reyl & Cie, note however that, despite different industrial logic, these companies have three common points. First, they operate in markets protected by strong barriers to entry. "The clearest example comes from the oil companies, where new entrants are non-existent in this sector to capital-intensive, between exploration expenditure, heavy investment in the production, refining, transport and distribution networks", they say.

Then, their size gives them a bargaining power important both their suppliers and their customers as local or supranational authorities. "In view of the volume of its commands, Toyota is able to negotiate prices with automotive OEMs, argue they. But the Japanese manufacturer also chose to implement its production sites in the us where he was able to negotiate with the local authorities. This strategy, which is to think in global terms while acting at the local level, has contributed greatly to the maintenance of its leadership. Today, the Group communicates also openly on the fact that its vehicles contain many more components manufactured in the United States than those of its U.S. competitors.

Finally, these companies have adapted to changes in their economic environment, including taking the corner of globalization. "Toyota, there again, was able to adapt to the request of American consumers, and not of the Asian market, only by developing new lines, such as Lexus luxury vehicles." "But it is also marked other builders in innovative hybrid vehicles, via the Prius, and it became the reference on this niche player", they added.

Dominique Macé, Director management collective in Barclays, and Jean-Patrice Prudhomme, Director of the private management, are also in this sense. "Toyota has demonstrated its ability to innovate and to adapt to changes in its environment into the production chain, by inventing the concept of the"just-in-time". In a different logic, General Electric regularly redeployed its portfolio to accompany the growth sectors, transferring the activities where the value added tends to decrease to strengthen on the professions of the future, as is the case today for medical imaging.

According to Barclays managers, this adaptive capacity is mainly due to the consistency of management teams. "While the market tends to focus on the short term, Jack Welsh (the GE ex-patron revered by Wall Street), and Jeffrey Immelt have demonstrated their visions in the long term, with ambitious targets for each redeployment." For example, the group is currently the third largest world producer of wind turbines. But it is implementing large means of research and development and commercial developments which should enable it to become the leader on this activity in the future.

Barclays team further notes that these six companies, four are rated AAA by the agency Standard & Poor's (Wal-Mart being noted AA while Altria is rated BBB). "These ratings tend to demonstrate that growth strategies based on the use of their own risk-taking rather than debt, are paying in the long term."

As many elements to meditate to select large cap...