What Are FAANG Stocks and FAANG Stock Performance?

Key Takeaways

• The acronym FAANG represents Facebook, Amazon, Apple, Netflix and Google, five of the most valuable tech companies in the world.

• These stocks have an outsized effect on the S&P 500 as well as the NASDAQ 100 indexes.

• Investors may have positions in these companies without realizing they do, because the stocks are included in a wide range of exchange traded funds, mutual funds and index tracking funds.

Facebook, Apple, Amazon, Netflix and Google — these five tech stocks have long been considered the tech industry’s benchmarks. They have exceptionally high value; they function in a high-growth area of the economy, and they have anchored many investment portfolios for quite some time.

Owing to their notoriety, the acronym FAANG was derived from the names of these mega-cap tech investment opportunities.

The FAANG Origin Story

While The Street’s Bob Lang is credited with coining the FAANG acronym, CNBC’s Jim Cramer is credited with popularizing it in 2013, when he touted the future prospects of Facebook, Amazon, Netflix and Google. The acronym gained an additional “A” when Cramer folded Apple into the grouping in 2017.

Google became Alphabet in 2015 and Facebook became a subsidiary of Meta in 2021. Netflix, with a market cap of “only” $156B, is no longer looked upon as the shining example of growth and prosperity it was once considered. Thus the “N” has been replaced by an “M” for Microsoft in recognition of that company’s market cap of nearly $2 trillion.

Thus, a new acronym emerged in 2022: MAMAA—for Meta (META), Amazon (AMZN), Microsoft (MSFT), Apple (AAPL) and Alphabet (GOOGL).

It should be noted that while all the former FAANG (now MAMAA) stocks depend upon tech, the Global Industry Classification Standard (GICS) consider Alphabet and Meta to be Communications Services stocks. Additionally, Amazon is looked upon by the GICS as a Consumer Discretionary stock.

FAANG Stocks Breakdown

(All financial quotes are in USD as of Feb 16, 2023)

Meta – The company ‘s social media platform, Facebook, is the world’s most popular. Meta also owns Instagram and WhatsAPP. The company has a market cap of $459.3B, its price to earnings (P/E) ratio is 20.1 and its year-to-date (YTD) return is 43.9%

Amazon – Far from the online bookseller it started out as being, Amazon has evolved into a global ecommerce behemoth. Its revenue streams also include cloud services, entertainment and advertising. Amazon’s market cap is $1.01T, its P/E Ratio is 84.47 and its YTD return is 18.7%.

Microsoft – The largest software company globally, Microsoft is home to the Windows operating system, the LinkedIn professional social media platform and the Xbox gaming system. The company also owns Azure cloud services. Microsoft has a market cap of $1.95T. Its P/E Ratio is 29.84 and its YTD return is 13.5%

Apple – While still a major player in the personal computing field, Apple’s income streams also include iPhones and AppStore sales, as well as Apple Pay, Apple Care, Apple TV and Apple Music. The company has a market cap of $2.5T, its P/E Ratio is 26.37 and its YTD return is 18.30%

Alphabet – The parent company of Google, Gmail, You Tube, Google Nest and Google Cloud, Alphabet has as its foundation the world’s most popular internet search engine. Advertising drives the company’s revenues. Alphabet’s market cap is $1.22T, its P/E Ratio is 20.96 and its YTD return is 6.9%.

Netflix – Single-digit revenue growth and fierce competition resulted in Netflix being demoted from the ranks of FAANG in 2022. The streaming platform’s market cap is $156.19B, its P/E Ratio is 35.8 and its YTD return is 17.8%

The Importance of FAANG Stocks

Numbered among the largest companies in the world, the FAANG stocks are also well known among investors and the general public alike. As of Q1 of 2022, the companies had a combined market cap of roughly $7 trillion.

Each of these companies’ securities trade on the NASDAQ exchange. They are also included in the S&P 500 index, where they comprise approximately 19% of the index. Because they are popular holdings in exchange-traded funds and mutual funds as well, most investors probably have at least a small position in each of these companies.

Given the influence they wield, any volatility FAANG stocks experience can ripple through the indexes containing them and have a significant effect on their performance. As an example, FAANG stocks were responsible for a 40% gain in the S&P 500 index between February and August of 2018. Their influence on the NASDAQ 100 is even greater, as they make up nearly 39% of that index. This means that investors holding funds with investments in either of those indexes, along with any individual holdings in these stocks, may be less diversified than they believe themselves to be.

Investing in FAANG Stocks

As mentioned above, many investors holding positions in exchange-traded funds or mutual funds probably already have a minor position in each of these stocks. While no mutual or exchange traded fund is dedicated specifically to equities in these companies, most tech funds do include them.

They can usually be found in broad-based market index funds as well. Any fund tracking the NASDAQ composite index will include them. The First Trust Dow Jones Internet Fund also includes FAANG stocks.

The stocks in the group also trade individually on NASDAQ. Because of this, it is possible to take positions in each of them and create a FAANG portfolio. There is a catch, though: investing in these companies is a capital-intensive proposition, as each of them boasts high share prices.

Are FAANG Stocks Good Investments?

Largely viewed as contemporary blue-chip investments, FAANG stocks have the advantage of being associated with companies that are known and used by a huge swath of the general public. As a group, they tend to do quite well, often outperforming the standard indexes.

That said, seasoned investors know that past performance should not be considered an indicator of future results. However, owing to their substantial presence in both the S&P 500 and the NASDAQ 100, FAANG stocks could continue to wield an outsized influence over the market for many years to come.

On the other hand, as Netflix investors have discovered, the mighty can stumble, or even fall. As successful as these companies have been, there is no such thing as a sure thing when it comes to investing,

Portfolio Diversification and Alternative Investments

This is why portfolio diversification in asset classes unrelated to the stock market is considered to be a wise investment strategy. Alternative investments can be a good way to accomplish this. Traditional portfolio asset allocation envisages a 60% public stock and 40% fixed income allocation. However, a more balanced 60/20/20 or 50/30/20 split, incorporating alternative assets, may make a portfolio less sensitive to public market short-term swings.

Real estate, private equity, venture capital, digital assets, precious metals and collectibles are among the asset classes deemed “alternative investments.” Broadly speaking, such investments tend to be less connected to public equity, and thus offer potential for diversification. Of course, like traditional investments, it is important to remember alternatives do entail a degree of risk.

In some cases, this risk can be greater than that of traditional investments.

This is why these asset classes were traditionally accessible only to an exclusive base of wealthy individuals and institutional investors buying in at very high minimums — often between $500,000 and $1 million. These people were considered to be more capable of weathering losses of that magnitude should their investments underperform.

However, platforms like Willow Wealth provide curated access to private markets for individual investors.   

Investors can get started with minimum investments as low as $5,000 for their first investment (subject to certain exceptions). Willow Wealth offers a curated selection of opportunities across multiple asset classes, ranging from individual investments to diversified funds and automated portfolio solutions. While these investments carry risk, they open the door to opportunities across real estate, private credit, private equity, and more.  

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In Summary

Considered among the blue-chip investments of contemporary markets, FAANG stocks can be found in nearly every technology-focused fund. As a result, many investors may have positions in these companies without realizing they do. This could result in less portfolio diversification than anticipated. Investing in alternatives with a platform like Willow Wealth can help ensure portfolio diversification in asset classes that may not be affected by market volatility.