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FAANG: Taking a Bite Out of the Equity Market

You’ve heard a lot about it. But what exactly is FAANG? Could it eventually bite you?

Client Conversations gives financial advisors an easy way to communicate with clients on topics influencing financial markets; it highlights common investor behaviors and offers ways to address the challenges investors face. Share this article with your clients, and remember to follow your firm's policies that govern sharing content with clients and prospects.

Client Conversations gives financial advisors an easy way to communicate with clients on topics influencing financial markets; it highlights common investor behaviors and offers ways to address the challenges investors face. Share this article with your clients, and remember to follow your firm's policies that govern sharing content with clients and prospects.



FAANG is not a romantic vampire novel, nor some fancy Florida snake farm. It’s an acronym for a quintet of US tech companies driving markets: Facebook, Apple, Amazon, Netflix, and Google’s parent company, Alphabet. They have contributed heavily to market performance recently (FIGURE 1). However, some question the long-term sustainability of these returns. They point to concentration risk in cap-weighted indexes, such as the S&P 500 Index,1 and a potential FAANG bubble thanks to possibly overinflated valuations (FIGURE 2). While FAANG could continue driving strong returns, make sure your exposure is intentional. 

 

FIGURE 1

FAANG Stocks Dominate (% returns as of 7/31/19)

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Data Source: S&P Capital IQ; Calculations: Hartford Funds, 8/19. Performance data quoted represents past performance and does not guarantee future results.  

 

Figure 2

Too Much of a Good Thing?

FAANGs are becoming a bigger part of the S&P 500 Index. Their valuations, as measured by their price/earnings (PE) ratios,2 are much richer than the Index’s.

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Data Source: Factset, 8/19. *2019 data is through 7/31/19.

Talk to your financial advisor today to make sure your portfolio isn’t overly concentrated in a handful of stocks. 





1 S&P 500 Index is a market capitalization-weighted price index composed of 500 widely held common stocks. Indices are unmanaged and not available for direct investment.

Price/earnings (P/E) is the ratio of a stock’s price to its earnings per share.

Investing involves risk, including the possible loss of principal.

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