FAANG stocks: the 5 Big Tech Stocks
For many years, America's largest technology and new media companies were widely regarded as stocks with marked similarities. However, this perception has changed over time. Today, most technology stocks are “growth” companies.
In finance, "FAANG" is an acronym for the shares of five major American technology companies: Facebook (now Meta Platforms) (META), Amazon (AMZN), Apple (AAPL), Netflix (NFLX), et Google (GOOG) (now Alphabet). These stocks have become famous on Wall Street for their remarkable growth in recent years. Last June (06/2023), Apple passed the symbolic $3,000 billion mark in market value. This is the second time in history that the Apple stock has surpassed this valuation (it had already been passed during a trading session in January 2022, but very briefly).
Have big techs outperformed the S&P 500 over the past 10 years?
Over the past ten years, the FAANGs (Facebook, Amazon, Apple, Netflix, and Google) have significantly outperformed the S&P 500 (500 largest publicly traded US companies) in terms of returns. On average, these stocks generated annual returns of around 30%, while the S&P 500 posted an average annual return of around 13%.
What's more, an investor in the S&P 500 would have generated a return of 135.6%. So much so that investing in a FAANG portfolio (Facebook, Amazon, Apple, Netflix, and Google) would have generated a return on investment of over 776%. This illustrates just how fast these tech companies have grown over the past 10 years.
What are the effects of excluding the FAANGs on S&P 500 performance and volatility?
Excluding all FAANGs, the annualized performance of the S&P 500 over the five-year period ending February 28, 2022, would have fallen from 15.17% to 6.98% per annum, a reduction of more than half. Notably, the S&P 500's 18.4% total return in 2020 would have been just 3.3% if Mega Cap stocks had been excluded. That said, Netflix (NFLX), Meta Platforms (FB) and Alphabet (GOOGL) would have contributed the least to overall index performance.
What's more, if we exclude these stocks, then the standard deviation of the index would have improved by 4 percentage points. In conclusion, US big techs have outperformed the S&P 500 over the past five years, but their volatility is higher than that of the index. However, for a long-term investor, the reduction in volatility is often less of a concern than the loss of return. This is because long-term investors tend to prefer stability and growth in their portfolios over an extended period.
Are FAANGs more resilient in times of crisis?
The FAANGs have shown great resilience during periods of market turbulence, more so than the S&P500 index. During the COVID-19 pandemic, for example, when many companies suffered massive losses, the FAANGs showed their robustness by maintaining growth and even stimulating certain sectors of the economy.
In short, continuous innovation, customer loyalty and their ability to adapt to changing market conditions are the main reasons why FAANGs have maintained their resilience during periods of economic turbulence, such as the COVID-19 pandemic. In this way, their ability to stay ahead of the technology curve has strengthened their dominant position.