Here’s What The World’s Richest Family Is Investing In. Should You Be Too?

Here’s What The World’s Richest Family Is Investing In. Should You Be Too?
Carl Hazeley

over 2 years ago4 mins

  • The world’s richest family is primarily invested in low-cost ETFs tracking emerging markets, perhaps hoping to benefit from the resurgence of value stocks.

  • But it’s also invested in individual stocks like Snowflake and Pinduoduo, which offer exposure to fast-growing industries in cloud computing and ecommerce.

  • And in private equity firm Apollo Global Management, where record levels of deals that drive high earnings growth are likely to continue for a while.

The world’s richest family is primarily invested in low-cost ETFs tracking emerging markets, perhaps hoping to benefit from the resurgence of value stocks.

But it’s also invested in individual stocks like Snowflake and Pinduoduo, which offer exposure to fast-growing industries in cloud computing and ecommerce.

And in private equity firm Apollo Global Management, where record levels of deals that drive high earnings growth are likely to continue for a while.

Mentioned in story

The world’s richest family – the Waltons of Walmart fame, worth a jaw-dropping $238 billion – has recently opened up about how it invests its vast fortune. And given that the value of those investments rose from $3.8 billion in late 2021 to $5 billion at the end of June, we thought you might like to know what the Waltons are up to and why…

What are the Waltons invested in?

The Waltons are invested in a few individual listed stocks, which we’ll get onto shortly. But the majority of their investments are in low-cost exchange-traded funds (ETFs) that allow them to diversify their picks along a given theme, while also keeping more of the profit for themselves (rather than paying out hefty fees for active management).

Looking closer at those ETFs, the biggest bets they’re making are on emerging markets (EMs), with over 60% of the $5 billion in EM ETFs. Others include short-term bonds, small-cap stocks, and developed markets.

Source: Bloomberg
Source: Bloomberg

Why invest in emerging markets?

There’s recently been a rotation in markets toward value opportunities, and EMs typically sit in that camp. That might explain why EM stock indexes have outperformed developed market (DM) ones over the last week.

Global equity market performance (local indices). Source: Goldman Sachs.
Global equity market performance (local indices). Source: Goldman Sachs.

EMs offer the potential of more significant growth opportunities than DMs, as well as diversification benefits since EM stocks don’t always move in sync with those in DMs. But their heightened economic sensitivity also makes them riskier propositions, and that’s typically reflected in cheaper valuations than DM assets.

EM vs. DM valuations shows EMs trading at a notable discount. Source: Goldman Sachs.
EM vs. DM valuations shows EMs trading at a notable discount. Source: Goldman Sachs.

A better idea might involve being more selective about which specific emerging markets you invest in. And that might be what the Waltons are doing: their biggest ETF – the Vanguard FTSE Emerging Markets ETF – invests in 1,822 stocks, and is over 50% weighted towards Chinese or Taiwanese companies. Their second-biggest ETF – the iShares Core MSCI Emerging Markets ETF – invests in 2,601 stocks and, again, is about 50% invested in China and Taiwan.

But with money to spare, the family’s also invested in a few listed companies directly: private equity firm Apollo Global Management, tech firm Snowflake, and Chinese online grocer Pinduoduo. Let’s look at those next.

Why invest in Apollo Global Management?

Private equity (PE) firms like Apollo use a mix of investor money and debt to buy out a target company, in hopes of improving day-to-day operations and selling it on for a profit a few years later. And that business model has never looked more appealing: record-low interest rates have made it super cheap for them to raise the funds they need, while sky-high stock prices have put them on the scent of market-beating returns. That might be why the PE industry has accounted for a record 30% of all deals made this year globally.

PE deals share

The rush isn’t slowing down anytime soon either: the sector’s built up a record $3.3 trillion of unspent cash in the first half of the year, meaning it still has plenty in the tank for even more acquisitions.

PE dry powder

And that’s what could make Apollo a good bet: it’s one of the biggest listed PE firms out there, so will likely do well out of the dealmaking to come. It’s also trading at almost the lowest 2021 price-to-earnings ratio of its peers, even as it offers among the most promising earnings growth potential, according to Goldman Sachs’ estimates.

US private equity 2021E P/E ratios.
US private equity 2021E P/E ratios.

Why invest in Snowflake?

Besides being backed by Warren Buffett, there’s a good reason to get excited about tech company Snowflake. It specializes in cloud computing-based data warehousing, and it’s betting that the future of cloud computing will be essential to enterprise customers beyond the tipping point of adoption in the industry. The sector’s been growing more quickly than expected in the last year, and it should continue to grow at a fast clip in the coming months and years.

Gartner public cloud market size, $ billions
Gartner public cloud market size, $ billions

The key risks, though, are twofold. First, the company isn’t profitable, and while investors seem to be fine with that for now, they may quickly change their minds if there’s an economic or company-specific downturn. And second, the biggest players should continue to benefit from a disproportionately high share of the growth as the industry matures. That could leave Snowflake out in the cold, unless it becomes so dominant in its niche that it becomes dominant in its own right, or unless it gets bought out by one of its bigger rivals.

Why invest in Pinduoduo?

China’s “Amazon for farmfoods” is in an exciting place, with online grocery adoption accelerating quickly. Fresh food is a particularly promising market: Goldman Sachs estimates that people will do 40% of their fresh food grocery shopping online by 2025, up from less than 10% in 2019. The last quarter alone has started to show investors that the company’s unique business model can deliver ahead of expectations.

Still, it’s hard not to question the wisdom of this particular investment in the pursuit of a balanced and well-diversified portfolio. The Waltons’ portfolio, after all, is already heavily skewed toward China via its EM bets, and the government’s recent crackdowns haven’t exactly filled investors with confidence. Then again, you can probably afford to take a few risks when you have $238 billion in your back pocket…

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Disclaimer: These articles are provided for information purposes only. Occasionally, an opinion about whether to buy or sell a specific investment may be provided. The content is not intended to be a personal recommendation to buy or sell any financial instrument or product, or to adopt any investment strategy as it is not provided based on an assessment of your investing knowledge and experience, your financial situation or your investment objectives. The value of your investments, and the income derived from them, may go down as well as up. You may not get back all the money that you invest. The investments referred to in this article may not be suitable for all investors, and if in doubt, an investor should seek advice from a qualified investment advisor.

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