Even after 12 years of U.S. mega-cap outperformance, Principal Global Investors argues that the asset class will provide some measure of protection to investors as markets adjust to slower global growth and continuing low interest rates. This according to an article in Institutional Investor.

After performing a “peak-to-peak” analysis of the asset class’s performance between October 2007 and April 2019, Principal determined that the outperformance of mega-caps was driven primarily by a “consumer and technology renaissance” in which the mix of companies became more heavily weighted in communications services, consumer discretionary, and information technology sectors.

The chief investment officer of the firm’s Principal Portfolio Strategies, Todd Jablonski, explained, “Tech is disrupting everything and mega-cap names have been best at exploiting the benefits.” He added, “It’s our view that in a low-rate environment firms will struggle to grow revenue, and there will be a premium to any institution that can deliver growth.”

Jablonski also believes that concentration is driving the market: “U.S. mega caps have become even more mega. The weighted-average market cap of the top 100 names in the U.S. universe more than doubled over the period—further testament to the importance of those technology and consumer exposures.”

However, Jablonski notes, there are risks inherent to the bullish view on mega-caps, including the ongoing trade conflict between the U.S. and China: “The persistent negotiation mode that our administration is in makes it hard for firms to plan.” He adds that the policies of the Fed and other central banks also affect investor expectations, and that “we’re in a completely different place than we were ten years ago.”