Hi. I'm Matt Brundage here at Bridgehouse, and I recently had a chance to speak with Louis Florentin-Lee, managing director, and portfolio manager at Lazard. I asked him for his views on the Magnificent 7 and their impact on the broader equity market. Here's what Louis had to say. So clearly, the concentration effect had a massive impact on the market last year and therefore, a big impact on active managers' ability to outperform or even just about keep up with the broader market.
And I would describe the level of concentration in last year's global equity returns as unprecedented, almost unprecedented, certainly in my personal investment career, which goes back to the mid to sort of mid to late nineties. We look, if you look at the top ten stocks in the ACWI index, this year or for 2023, they contributed nearly 40 of the index's total return, those top ten stocks, which represented on average, about fifteen percent of the index.
And we've looked back as far as our license agreement with MSCI will enable us to, which is to the early 1990s and we can't see any other period of time, like, or calendar year where there was a similar level of concentration, even in the the dot-com bubble, I think you would have to actually go back to the era of the nifty fifty to find a similar period of concentration. And of course, therefore, the Magnificent 7, as you've described, has clearly played a dominant role in this.
Now we have owned in the portfolio, and for a long time we've owned these these two stocks, Alphabet and Microsoft, but we haven't owned the other five. And the combination of not owning, Tesla, and Amazon, and Meta, and Apple, and Nvidia cost, if you will, was a headwind to the portfolio of over four hundred basis points. So that is an enormous number. I've never in the in the thirteen years we've been running this strategy.
I've never had to, when we talk about attribution, I've never had to focus so much on the stocks that we didn't own as opposed to the ones that we did. What's actually been quite interesting when we look at their performance over the last year or so and you can see this on the right-hand side of that slide is that the performance of the Magnificent 7 has been predominantly driven by multiple expansion rather than through earnings improvement over that period.
So you can see that by the difference between those two different shades of blue in the right hand chart. And I'd just like to remind people that the way that we typically have delivered alpha and share price appreciation through this portfolio and through the stocks that we've held in this portfolio is through the compounding effect on cash flows and earnings of these companies and holding them for a long period of time.
It's been that that's driven the share prices in the stocks that we've owned rather than us being able to anticipate that a stock is going to go from fifteen times PE to thirty times PE all in the space of a year.
So if we run through, and if we run through the list, the list of the five that we don't own, and I'll just make a couple of comments on each we don't own and have never owned Tesla because for us, it does not have either the historical characteristics of a compounder nor do we believe it could be a compounder in the future in terms of generating persistently high financial productivity.
Tesla has seen a decade of negative cash flow return on investment until 2020, and then only in 2022 did it produce one very good year in terms of financial productivity, and now those returns are on the decline again. And we don't see anything about Tesla's business that makes us believe that it can sustainably earn very, very high returns on capital into the future. The auto industry is not a happy place if you want to look for profits, I would suggest.
In the case of Meta, we don't own Meta because we can't put our hands on our heart and again, put our belief in a particularly strong or evident competitive advantage that we believe will enable Meta to sustain its high returns, look further out into the future, certainly further than the market expects with the current valuation. In term, in the case of Apple, we absolutely recognize that this is a high return on capital business. No question, and it has some formidable economic moats.
But I think it's reasonably fair to say that the penetration of the iPhone is pretty high. And actually, if you look at the growth and reinvestment opportunities at Apple, we don't see those as being particularly high. And therefore, as it's trading on thirty times earnings, you would have to believe that the high return, these high returns will last for an extremely long period of time. So we just don't see that as being attractively valued at this point in time.
And then lastly, in the case of Nvidia, I think what we've seen in Nvidia is a is what I would call transformation, completely transformed earnings power, rather than compounding earnings power, which is a polite way of saying we missed it. We missed that AI revolution that took place and transformation in their business last year. So, that was a sort of a summary of of the concentration effect on the market.
In particular, the Magnificent 7, which has cost us over four hundred basis points and why we positioned the way we are at the moment in those names.