FAANG Stocks Outperformance

“FAANG Stocks- Facebook, Amazon, Apple, Netflix and Google” –term coined by Jim Cramer in 2013


Want to know how the stock market is doing in 2020? This chart from Goldman Sachs pretty much sums it up. The S&P 500 is up about 2% year-to-date. As you can see, the fact that it’s up at all is attributable to the outperformance of 4 of the 5 FAANG stocks plus Microsoft. The other 495 stocks of the S&P 500 are down for the year.

Exhibit one, The five largest stocks have returned 35 percent

In a market-cap weighted index like the S&P 500, the largest market-cap stocks have the biggest impact on performance. This year, the biggest stocks have helped performance. Future years they could hurt performance. Remember the tech crash in the early 2000’s?

That’s why we believe in the power of diversification. The S&P 500 (large U.S. company growth stocks) makes up about 5% of our average client portfolio. We believe in putting the odds in our favor by tilting our portfolios to factors ( i.e small cap and value stocks) that have proven to outperform over time. Sure, that means there will be periods of under-performance. Rather than gambling on the narrowly focused technology sector or speculating on the next outperforming asset class, I’d rather live with evidence based Nobel Prize winning investment strategies.