MCF Insights: Will FAANG be DeFanged in 2019

2018 was a volatile year for the FAANG stocks after a staggering 2017

At the beginning of 2018, the FAANG stocks – Facebook, Apple, Amazon, Netflix and Google (which is technically Alphabet) were all the rage. But 2018 brought more volatility and wiped out a lot of market value. And 2019 is looking similar to 2018 – sort of.

FAANG’s Performance in 2018

In terms of performance, through the end of 2018, investors saw:

• Facebook down about 25% – its only negative year since going public in 2012;
• Amazon up about 28%;
• Apple down about 7% – its worst year since 2008;
• Netflix up about 40%; and
• Google down about 1%

And performance in 2017 was off-the-charts spectacular as four of the five FAANG stocks gained roughly 50 percent in 2017, except for Google, which was “only” up about 30%.

But despite 2 of the 5 doing well in 2018, all of them struggled at times as volatility spiked toward the end of the year, there were calls for more regulatory oversight, privacy breaches, chip concerns, and uncertainty surrounding China, among other things.

FAANG’s Size Will Impact the Markets

Here are a few other things to note:

• The technology sector makes up about 23% of the market weight of the S&P 500 (by way of comparison, technology comprised about 34% of the S&P 500 during the tech bubble in March 2000)
• FAANG makes up over 10% of the S&P 500

So, while some might be worried with the gains/losses driven by so few names, there is something investors need to remember: that’s usually how it works with market-cap weighted indices – very few names usually account for the majority of the gains/losses.

Thoughts for 2019

Except for maybe the latter half of 2018, if you had purchased any or all of the FAANG stocks, the decision rewarded you handsomely. Heck if all you owned was the five FAANG stocks in 2018, you still would have averaged up about 7% – which is significantly higher than the S&P 500’s 2018 decline of 6%. But the divergence in 2018 performance is a warning shot reminding investors that the FAANG stocks are each different with unique risks. 

From the perspective of a seasoned financial advisor, the recommendation is actually pretty straightforward: if you only own the FAANG stocks – or even just a few stocks – you are simply not diversified. Period..

^{Source: Salinas, Sara. “A Year Ago the FAANG Stocks Were a Hot Buy - Here's Where They Stand Heading into 2019.” CNBC, CNBC, 31 Dec. 2018, www.cnbc.com/2018/12/31/faang-stocks-2018-performance.html.}

^{MCF has published this article with permission from Financial Media Exchange.}

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