The FAANGS of the Market

Elizabeth Verdi |

I am not talking about the venomous teeth of a rattlesnake. Rather, I am referring to the 5 stocks that are largely responsible for carrying the U.S. Stock Market the last 5 or 6 years. FANG, made up of Facebook,  Amazon, Netflix, and Alphabet (Google) collectively have done tremendously well since Jim Cramer of Mad Money came up with the acronym on his show in February of 2013. (FANG later became known as FAANG as Apple was not included in the original acronym.) Cramer was later quoted saying, “Put money to work in companies that are totally dominant in their markets, and put money to work in stocks that have serious momentum.”

I took that quote to heart and ran a hypothetical scenario showing the value of what a $10,000 investment in FAANG* compared to the S&P 500 would be today (June 2019) since February 2013. As you can see, the FAANG stocks have outperformed the S&P 500 as a whole, (with these 5 stocks included in the index) by over 300%. There is no doubt that if you took Cramer’s advice, it has likely paid off for you. Do not worry if you did not go out and buy these stocks individually. Nearly every single mutual fund that tracks the S&P 500 will have these 5 stocks in their allocation in some way.

*The above graph is a hypothetical general illustration and is no way meant to represent the portfolio of any particular person or persons.  The growth of $10,000 graph shows a hypothetical FAANG portfolio’s performance based on how $10,000 invested in the hypothetical portfolio would have grown over time with dividends reinvested for the time period between February 1, 2013 and June 13, 2019.  The hypothetical FAANG Portfolio for the graph was allocated evenly (20% each) between FB, AMZN, NFLX, AAPL, & GOOG, rebalanced on a quarterly basis. The performance results presented herein, for both the hypothetical FAANG portfolio as well as the S&P 500, do not reflect the deduction of transaction and/or custodial charges, the deduction of an investment management fee, nor the impact of taxes, the incurrence of which would have an effect of decreasing historical performance results.  An investor may not directly invest in an index.            

 

It is clear these 5 companies have not only been dominant in the stock market, but if you live in the United States it may be that these 5 companies drive your daily life. Facebook (FB) is the world’s leading social media company. Apple (AAPL) is the creator behind the iPhone. Google (GOOGL) is the #1 search engine in the world. Netflix (NFLX) is the most successful video streamer in the world. And Amazon (AMZN) is taking off in the e-commerce world, revolutionizing how U.S. consumers shop online.

The companies that comprise FAANG continue to lead their respective industries, though there is some growing tension as to how long these companies can stay on top. The downturn of the market in 2018 hit FAANG incredibly hard. This quote by Dan Rosenberg in his article, 2018 in Review: Bull Market Reined In As Economic Concerns Grew[1], summarizes the falloff of these 5 companies at the end of last year well, “By early December, all five of these closely followed names had descended more than 20% from their all-time highs, helping to put what had been one of the biggest sources of upward momentum into a bear market and helping spike negative sentiment that flowed beyond just the info tech, consumer discretionary, and communication services sectors where they reside. The total hit to the market cap of just these five stocks hit $1 trillion by late November.” Fortunately, the hypothetical portfolio of FAANG stocks had a good start to begin 2019, surpassing its 2018 highpoint at the beginning of May. But it does show FAANG is not immune to market uncertainty.

Although the information presented above is not groundbreaking, I wanted to take this opportunity to highlight just how impactful these 5 companies have been for the US Stock Market since 2013. Investor portfolios may not have grown as much the past 6+ years if it weren’t for the FAANGs of the market.

Disclosures

  • Any discussion of investment strategy and philosophy found in this post is not intended as any form of substitute for individualized investment advice.  The discussion is general in nature, and therefore not intended to recommend or endorse any asset class, security, mutual fund, or technical aspect of any security for the purpose of allowing a reader to use the approach on their own.  Before participating in any investment program or making any investment, clients, as well as all other readers, are encouraged to consult with their own professional advisors, including investment advisors and tax advisors.  Rembert Pendleton Jackson can assist in determining a suitable investment approach for a given individual, which may or may not closely resemble the strategies outlined herein. This document does not constitute a complete description of our investment services and is for informational purposes only.  It is in no way a solicitation or an offer to sell securities or investment advisory services.  All investments involve risk, including foreign currency exchange rates, political risks, and market risk, different methods of accounting and financial reporting, and foreign taxes.
  • Past performance is not a guarantee of future results.  There is no guarantee that historical returns will be repeated, achieved, or met in the future.  There is no guarantee that annual returns will be achieved or met in any year, especially during times of high market volatility.
  • Any charts, graphs, or visual aids presented herein are intended to demonstrate concepts more fully discussed in the text of this post, and which cannot be fully explained without the assistance of a professional from Rembert Pendleton Jackson.  Readers should not in any way interpret these visual aids as a device with which to ascertain individualized investment decisions or an investment approach.
  • The inclusion of specific security names in this post does not constitute a recommendation from Rembert Pendleton Jackson to buy, sell, or hold any of the securities mentioned.