FANG versus Everything Else: 2015’s Performance Divergence

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Forbes.com, Winter, 2015. This article was written with Jim Cahn, the Chief Investment Officer at Wealth Enhancement Group. It was part of a series of articles developed under an agreement with Forbes to work with a variety of contributors and assist them in delivering actionable investment ideas each week. The site forbes.com is one of the top 500 sites in the world with nearly 10 million subscribers and nearly 100 million page views a month.

With many asset classes in the doldrums for 2015, a small number of individual stocks have performed abnormally well. It is hardly unusual to have a few outlier performances. What is of more interest is the fact that these stocks are part of a very specific, industry niche. Additionally, due to their giant size, the abnormal returns were able to produce an outsized positive influence on broad U.S. equity indices.

‘FANG’ is an acronym for Facebook, Amazon, Netflix and Google but can be more symbolically used to describe fast-growing, U.S. Large Cap “story stocks”. Story stocks typically have optimistic expectations of the future, occur in dynamically growing industries and have extended valuations.

However, to say they are overvalued is probably a step too far. More fairly, investors pay significant premiums to partake in uncertain, yet potentially large, future earnings.

2015 has seen strong performance differentiation among various investments. But the differentiation wasn’t just between stock and bonds, U.S. stocks and international stocks, U.S. Large Caps and Small Caps, nor simply growth and value stocks. Not even solely looking at U.S. Large Cap and growth sufficiently delineates the winners. Instead, the place to be in 2015 was U.S. Mega Cap, growth tech companies—specifically, the FANG stocks.

Based on market data from December 14th, the YTD returns of the FANG companies are: Facebook – 34%, Amazon – 112%, Netflix – 147% and Google (now Alphabet) – 42%.

Remarkably, if you removed just these four stocks from the index, the YTD returns of the S&P 500 would decrease by roughly 4% from current levels. It is therefore reasonable to say that a few names in a very particular industry niche have done the heavy lifting for the broad U.S. equity index in 2015.

The information presented is not an endorsement for any particular investment, is for general information only and is not intended to provide specific advice or recommendations for any individual. Stock investing involves risk including loss of principal, and you should speak with your advisor about your particular situation before investing.

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