What Are FANG+ Stocks and Why Is This Important?
The FANG+ index is only a hair’s breadth from the February all-time high. The FAANG stocks include Facebook, Apple, Amazon, Netflix, and Alphabet’s Google. Earlier, without Apple, the term FANG was used. The New York Stock Exchange widened this group some years ago and created a new FANG+ Index which is also traded on the futures market. Also FANG+ ETFs (Exchange Traded Funs) exist.
The NYSE FANG+ Index is an equal-dollar weighted Index designed to represent a segment of the technology and consumer discretionary sectors consisting of highly-traded growth stocks of technology and tech-enabled companies such as Facebook, Apple, Amazon, Netflix, and Alphabet’s Google. (Ice)
Now, the list of FANG+ stocks has ten famous names. All are internet- or high-technology giants.
Huge Gap between FANG+ Stocks and Russel 2000
Is the complete US stock market climbing, or only some special stocks? The S&P 500 U.S. stock index has been rising since the end of March but is still below the level of the beginning of the year. The Nasdaq 100 index performed better. But the FANG+ shares are climbing much more. Several of these have made historical records in the last days. Facebook and Amazon are on new ATHs (all-time highs) on May 20. Tesla also exploded this year.
The S&P 500 index is capitalization-weighted. That means, the big companies have much more influence on the performance than the smaller ones. Also the “S&P 500 Equal Weighted” index exists. In this, all stocks have the same proportion. The Russell 2000 index tracks US small-cap stocks. (Modest size companies, with small market value, capitalization.) Both the “S&P 500 Equal Weighted” and the Russel 2000 lag far behind the large tech-stars in the FANG+ Index. The gap between the indices is very large, almost 40 percent. It’s between plus 20 and minus 19 percent this year.
The K-Shaped Recovery
Recessions have shapes. The V-shape recovery is a quick and huge fall in the economy, and a similar, fast restoration. Many people on Earth are praying for this now. The U-shape means something similar, but with a longer bottom and later recovery. Yesterday, I have heard about something new, the K-shaped recovery. Not even mentioned on the Wikipedia page about recession shapes.
The K-shape means, after a strong fall, some will go out of the pit, but others will continue to slide down. (The upper leg of the K is the winners, the lower leg is the losers.) Something similar can be observed in the stock market, with the FANG+ stocks up and the small caps behind. I hope the same can we avoid in society and the crisis will not lead to greater poverty in the long run.
In the last 10-15 years, but perhaps even for longer, one of the best investment strategies was to buy an index. Mostly, in the form of a low-cost equity index fund, an ETF. Now, however, we can expect a very different performance from different stocks. The choice between stocks, sectors, countries has become very important. The “buy the main index and hold it for 10-20 years” strategy seems to be obsolete.