What are the FAANGs and why are they important? - September 05, 2018

What are the FAANGs and why are they important?

Lately we hear (and write) more and more about the FAANGs, or as used sometimes, the FANGs. But why are these stocks are making the news so often in the last months? They are not only among the biggest companies of the world, they are also the most important engines of the growth of the US stock markets. Are they really this good?

FAANG (or sometimes FANG) is an acronym of the best performing (tech) stocks of the market. Originally, the FANGs consisted of Facebook, Amazon, Netflix and Google (or to put it more precisely, of its owner, Alphabet). The original name was coined by CNBC’s Jim Carmer, but later, the world’s most valuable company, Apple was added to the elite group, thus the name FAANG was born.

Are they that good?

FAANGs are having stellar performance lately. They have a serious part in the US stock market’s record bull run that we’ve just witnessed. But they also outperform the whole market. The S&P500 had a bull run with a 321% growth. During this same period, Google made a 690%, Apple a 1667%, Amazon a 2984% and Netflix a 6123% growth.

But it’s not only about growth, it’s also about market capitalization. These brands are among the most valuable companies of the world. Apple became the first publicly traded American company with a $1 trillion capitalization. Amazon and Google may follow its lead in the near future.

Do they worth it?

Markets change all the time, and sometimes even these big companies face problems. Facebook had its data scandal and produced the biggest one-day loss of American stock market’s history. Google is also often attacked (mostly by the European Union) about its data policies.

Still, these stocks are loved by the most prominent hedge funds and they all have them in their portfolios. (As all US investment managers above $100 million assets have to report their equity holding quarterly, this data can be followed.) In investment, an important rule is to follow smart money. (We wrote about this when we analyzed the gold market.) It’s safe to say that these big funds indeed are the smart money, and they bet on these tech giants.

Can it be just another bubble?

Seeing this performance, some are considering that FAANGs is just another dot-com like bubble. Before the dot-com burst, tech companies between 1995 and 2000 performed extremely well. Back then, wide spread internet was relatively new, and money was pouring into everything and anything that was connected to it. Some believe we see the same thing happening again just with (partially) different brands.

But there’s a huge difference: the FAANGs have proven real life performance and sometimes serious profits. Apple for example is making money and paying decent dividends. They also have great chance of further growth. They are already giants of several industries like advertising, social media, e-commerce or even hardware production. What’s more, they are heavily investing in technologies of the future like cloud computing, artificial intelligence or machine learning.

Markets can be volatile, and even big companies can fade into oblivion if new tech takes them over, but it’s hard to see that happen now. Still, these are important factors and can be important when considering the future success of the FAANGs.

Disclaimer: This analysis is for general information and is not a recommendation to sell or buy any instrument. Since every investment holds some risk, our main business policy is based on diversification to minimize threats and maximize profits. Innovative Securities’ Profit Max has a diversified portfolio, which contains liquid instruments. This way, our clients can maintain liquidity, while achieving their personal investment goals on the long term.

(Header image: Pixabay)