With the FANGs (née FAANGs, née FAAMGs) in the news again, for good and bad, we thought it would be a good time to update our analysis that first looked back at 2015. Once again, we find less going on than first meets the eye. Let me try a sports analogy. It’s always interesting to report who won the Super Bowl. But, it’s not at all interesting to report that someone won the Super Bowl. Now, it would indeed be interesting to report if the winning team did something truly outsized like post a 19-0 record for the season. A lot of the reporting of the FANGs returns has a strong whiff of a 19-0 season when statistically it turns out much more like reporting that, yet again, the Super Bowl indeed had a winner. Remember, if you go looking explicitly for extremes you’re usually going to find them. The question then becomes, how extreme are the extremes this time around compared to the extremes you normally expect to find? That may be a horrible sentence, but we hope it’s an interesting economic exercise. To that end my colleague Todd Hazelkorn has updated and expanded the earlier FANGs study (and examined some other permutations of extreme contributions) through 2016 and YTD 2017. Take it away Todd.

SNAFU: Situation Normal, All-FANGed Up (An Update)

Early in 2016, Cliff wrote a blog post about the FANG stocks. The widespread claim then was that market performance was “narrow” in the sense that only a handful of stocks, the FANGs in particular, were responsible for the vast majority of market gains in 2015. We evaluated this claim by comparing 2015 to the preceding 20 years and found, notwithstanding the hype, that 2015 was a perfectly ordinary year in terms of the impact of the top 1, 2, 5, etc. stocks on the performance of the S&P 500. That didn’t mean the claim of narrowness was wrong, or that it wasn’t the FANGs that drove much of the overall market’s performance. It just meant that this situation was completely normal.

Now, a year and a half later, the FANGs are again in the press with similar claims they are the primary drivers of market performance (with a modest sell-off on June 9th and 12th perhaps confirming the implied fears that come with many of these observations). For the five months ending in May of this year, Google (now Alphabet but still the G in FANG) , and Amazon were two of the top 3 contributors to market performance. As a result, there has been a renewed interest in the press regarding the FANGs and about another overly “narrow” market rally (there has also been some surgery to the list — Apple has been added by some turning the ‘FANGs’ into the ‘FAANGs’ and a recent WSJ piece added Microsoft and removed Netflix from the list so perhaps it is now the ‘FAAMGs’).

Maybe the contribution of the FANGs, FAANGs, or FAAMGs in 2015 wasn’t exceptional. However, given the continued apparent outperformance of this group, has its impact on index returns over the past two years together been exceptional? Again, “exceptional” here means versus what the top few stocks usually contribute.

The answer to that question is, again, no.

Any way you slice the data, there isn’t anything truly exceptional about the last two calendar years even if you extend the period to include the strong 2017 FAANG performance through May. In this case the “why” is pretty simple — calendar year 2016 was not a particularly great year for the FAANGs (and you may notice the news stories indeed died down for a while). In 2016, some older economy names like JP Morgan and Chevron were the top contributors to S&P 500 returns, while the FAANGs performed more in line with the rest of the market.

Here is the (revised) exercise. For 2015, 2016, as well as the first five months of 2017, I identified the 20 companies with the highest contributions to S&P 500 performance. I then looked at the decline in performance by removing the top 1, 2, 3, up to 20 companies and re-weighting over the remaining constituents (see Cliff’s original post for more details). Figure 1 shows the top five contributors over each of the three separate time periods. Facebook, Amazon, and Google were indeed in the top five in 2015 (Netflix was number 8). However, none of the FAANGs (FANGs or FAAMGs or Fin Fang Foom ) cracked the top 20 in 2016. Facebook, Amazon, and Google rejoined the top five for the first five months of this year, with Netflix at number 16. Apple was the top contributor for the first five months of 2017 (hence the recent need for the extra A!).



