During the last 12 months, simply 11 shares made up half of the positive aspects that powered the pan-European Stoxx 600 inventory index to a record-high shut on Friday.

Earlier this month, Goldman Sachs highlighted that Europe’s inventory markets had been dominated by this group of “internationally uncovered high quality development compounders” with the continent’s largest market caps, which the financial institution termed the GRANOLAS again in 2020.

The momentum of this group — which contains GSK, Roche, ASML, Nestle, Novartis, Novo Nordisk, L’Oreal, LVMH, AstraZeneca, SAP and Sanofi — has drawn comparisons to the “Magnificent Seven” U.S. tech giants and evoked related considerations about focus dangers in European fairness markets.

Collectively, the GRANOLAS account for round 1 / 4 of the full Stoxx 600 market cap, and Goldman analysts in a word final week highlighted that they exhibit qualities which might be anticipated to thrive within the present cycle, corresponding to strong earnings development, excessive and secure margins and powerful stability sheets.

“We expect additionally they stand to profit from the structural shift in direction of passive funding and the dearth of liquidity within the European fairness market,” the Wall Avenue financial institution’s analysts steered.

“From a World viewpoint, the GRANOLAS have even outperformed the so-called Magnificent 7 over the previous two years. Their (out)efficiency is much more spectacular on a risk-adjusted foundation: with a volatility 2x decrease than for the Magnificent 7, the GRANOLAS assist to spice up the Sharpe ratio.”

They famous that, whereas the group trades with a excessive price-to-earnings ratio, a measure that gauges whether or not a inventory is overvalued, that is “common for development firms” and the GRANOLAS truly commerce at a big low cost in comparison with the Magnificent Seven.

What’s extra, Goldman Sachs expects the sturdy development momentum to proceed, with a 7% income compound annual development charge anticipated for the GRANOLAS by way of 2025, in comparison with 2% for the broader market excluding the group. The 11 shares additionally present dividend yields for shareholders within the 2-2.5% vary.

“This implies that, in Europe, practically all income development of the STOXX 600 will come from the GRANOLAS. We expect this will likely be sustained by excessive boundaries to entry companies, strong stability sheets and excessive funding — they reinvest the identical share of money flows in R&D and development CAPEX because the Magnificent 7,” Goldman Sachs added.

Such a excessive and doubtlessly deepening focus of inventory market positive aspects provides rise to considerations about focus threat, however some analysts consider that the various sectors represented within the group could insulate the GRANOLAS to some extent.

Tim Hayes, chief funding strategist at Ned Davis Analysis, instructed CNBC on Monday that, for latest comparisons to the present state of play, market individuals ought to look to the top of 2020, when the market was extremely concentrated round a small variety of large-cap shares.

“What occurred then was the market broadened out and this introduced us into 2021 which turned out to be an excellent 12 months, very low volatility — we additionally had the market broaden out in anticipation of what turned out to be a globally synchronized financial enlargement, earnings development was coming by way of globally throughout sectors,” Hayes mentioned.

He steered this created “loads of complacency” out there, which prompted investor confidence to linger regardless of rising “divergences” beneath the floor.

“That is what created that very slim market on the finish of 2021, as a result of an increasing number of sectors began to diverge as we began to see indicators of those provide chain pressures and the inflationary pressures, commodity costs transferring increased, all of the issues that received us into the 2022 bear market,” Hayes added.

Whereas this doesn’t essentially should be a destructive indicator proper now, he steered that the longer the present complacency lingers, the extra weak the market is to dangerous information, or the excellent news that had been priced in failing to return by way of.

“We have seen this just lately with the expectation that we will have all these charge cuts, when it turned out, effectively, possibly we’re not going to have as many charge cuts because the market thought, that arrange a little bit little bit of a pullback,” Hayes mentioned.

“That may occur on a much bigger scale if the market will get too complacent, and then you definately’re extra weak to some sort of destructive shock getting into the image.”