Elected by the company’s shareholders, the board is meant to represent shareholder interests – it ultimately hires the CEO, sets strategic objectives, approves annual budgets, and provides accountability to the shareholders regarding the performance of the organization. These duties are no cakewalk, and finding capable and experienced board members to help run a multi-billion dollar corporation just isn’t easy.
Corporate Overlap
To locate a qualified candidate, one option is to hire someone that already has experience working on a big corporate board – and because it’s a part-time gig, people can actually be on multiple boards at once. Today’s data visualization is from Reddit user /r/qwerty2020 and it shows the overlap between boards of the top 50 largest companies in the United States. It reveals that 78% of the multi-billion dollar companies here have at least one board connection with another company on the list.
The Most Connected Companies
Here are the three most connected companies: 3M (7 connections) The 3M board has 12 members on it, including people like the retired CEOs of Kroger and UPS, and the current CFO of Microsoft. As for board members in common, there are seven people on 3M’s board that have a connection to one of the other 50 large companies, including: Boeing, Coca-Cola, AbbVie, Proctor & Gamble, Amgen, Chevron, and IBM. Boeing (6 connections) Boeing’s board has 13 members, including the CEO and Chairman of Amgen, and Ronald Reagan’s former White House Chief of Staff (Kenneth Duberstein). The former CEO of Allstate and the former CEO of Continental Airlines also serve on the board. It has six connections to other big U.S. companies through its board, including: 3M, AbbVie, Amgen, Johnson & Johnson, U.S. Bancorp, and AT&T. Amgen (6 connections) The large biopharmaceutical company has 13 people on its Board of Directors, including the CEO and Chairman of Phillips 66, the former CEO of Mattel, and a former CFO of Walmart. In total, it has six people that also serve on other boards: 3M, United Technologies, Apple, Boeing, Chevron, and McDonald’s. Runners up: (5 connections) Other highly-connected companies include Walt Disney, Apple, Chevron, Exxon Mobil, IBM, and Procter & Gamble – each has five board members that also serve for other top 50 corporations. on Last year, stock and bond returns tumbled after the Federal Reserve hiked interest rates at the fastest speed in 40 years. It was the first time in decades that both asset classes posted negative annual investment returns in tandem. Over four decades, this has happened 2.4% of the time across any 12-month rolling period. To look at how various stock and bond asset allocations have performed over history—and their broader correlations—the above graphic charts their best, worst, and average returns, using data from Vanguard.
How Has Asset Allocation Impacted Returns?
Based on data between 1926 and 2019, the table below looks at the spectrum of market returns of different asset allocations:
We can see that a portfolio made entirely of stocks returned 10.3% on average, the highest across all asset allocations. Of course, this came with wider return variance, hitting an annual low of -43% and a high of 54%.
A traditional 60/40 portfolio—which has lost its luster in recent years as low interest rates have led to lower bond returns—saw an average historical return of 8.8%. As interest rates have climbed in recent years, this may widen its appeal once again as bond returns may rise.
Meanwhile, a 100% bond portfolio averaged 5.3% in annual returns over the period. Bonds typically serve as a hedge against portfolio losses thanks to their typically negative historical correlation to stocks.
A Closer Look at Historical Correlations
To understand how 2022 was an outlier in terms of asset correlations we can look at the graphic below:
The last time stocks and bonds moved together in a negative direction was in 1969. At the time, inflation was accelerating and the Fed was hiking interest rates to cool rising costs. In fact, historically, when inflation surges, stocks and bonds have often moved in similar directions. Underscoring this divergence is real interest rate volatility. When real interest rates are a driving force in the market, as we have seen in the last year, it hurts both stock and bond returns. This is because higher interest rates can reduce the future cash flows of these investments. Adding another layer is the level of risk appetite among investors. When the economic outlook is uncertain and interest rate volatility is high, investors are more likely to take risk off their portfolios and demand higher returns for taking on higher risk. This can push down equity and bond prices. On the other hand, if the economic outlook is positive, investors may be willing to take on more risk, in turn potentially boosting equity prices.
Current Investment Returns in Context
Today, financial markets are seeing sharp swings as the ripple effects of higher interest rates are sinking in. For investors, historical data provides insight on long-term asset allocation trends. Over the last century, cycles of high interest rates have come and gone. Both equity and bond investment returns have been resilient for investors who stay the course.
