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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 in recent years (FIGURE 1) but have suffered some reversals since the second half of 2021—seemingly validating those who’ve questioned their long-term sustainability. Pointing to the concentration risk in cap-weighted indices, such as the S&P 500 Index,1 skeptics have warned of a potential FAANG bubble thanks to possibly overinflated valuations (FIGURE 2). While FAANGs still exhibit growth potential, make sure your exposure is intentional. 

FIGURE 1

Some FAANG Stocks Dominated While Others Faltered (% returns as of 2/28/22)

Past performance does not guarantee future results. Data Source: S&P Capital IQ; Calculations: Hartford Funds, 3/22. 

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 have generally been higher than the Index's.

  2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022*
% FAANG Weighting in S&P 500 Index 6.2 6.5 6.9 8.9 8.8 10.8 11.4 12.8 17.2 17.3 16.6
FAANG P/E Ratio 15.7 22.6 22.0 22.9 23.9 32.3 22.0 31.5 39.3 31.0 27.4
Average S&P 500 Index P/E Ratio 16.6 18.3 20.1 23.4 23.4 24.6 19.0 23.4 40.3 24.2 22.1

*2022 data is through 2/28/22. FAANG P/E Ratio is calculated using a weighted average. Data Source: FactSet, 3/22.

Talk to your financial professional 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.

2 Price/earings (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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