There has never been such a passion for acronyms to describe the shares that are pushing the market forward. The most catchy has proved to be Faang, for Facebook, Apple, Amazon, Netflix and Google. You can even buy a Faang exchange-traded fund (ETF) marketed by Sygnia.
There have been attempts to create similar acronyms such as Tand, for Tesla, Activision, Nvidia and Disney. But somehow, combining the firm that brought us Snow White and the Seven Dwarfs with Elon Musk is a bit of a stretch. Or maybe not. There were no catchy names in the dotcom boom of the late ’90s — the New Economy wasn’t really catchy, let’s face it. You have to go back to the “Nifty Fifty” of the 1970s, which included now long-forgotten companies such as Polaroid.
Morningstar Investment Management MD Victoria Reuvers says another acronym is relevant when considering whether to buy Faangs: Fomo, or fear of missing out. When certain areas of the market perform well, she says, investors often want to sell out of their current investments and buy into a sector that is doing well. There are two main emotions driving investors, she says, those who want to hold more Faangs as returns have been so strong, and those who are driven to invest abroad by their fear of developments in SA.
But investors need to look at their portfolios on a see-through basis. They might hold more Faangs than they think. And it is true that even a value manager such as Orbis has periodically owned Facebook and Microsoft in particular. But Reuvers argues investors should not restrict themselves to a limited selection of shares. In the Morningstar Global Growth Portfolio, much like many of its competitors there are a wide range of UK and European shares, US energy and financial counters and some emerging markets shares that are out of favour. The fund had a respectable 6.3% return over the past 12 months, and that’s in US dollars.
Sygnia CEO Magda Wierzycka says those who have not invested in Faangs will certainly make the case for other assets that did not do so well, but might have the potential to do well over the next three years. “Any sensible investor has three options,” says Wierzycka, “trust your asset manager to make all the calls, trust no-one, including yourself, and just buy the entire market through an index fund, or use index funds as the core and tilt the portfolio to what you believe in.”
Wierzycka believes trying to game the system through stock selection or very granular sector allocation has proven to destroy value. Covid-19 has propelled the Faang stocks but the trend towards technology-based solutions has been on the go for a while now. Sygnia launched its fourth industrial revolution (4IR) ETF in 2016.
Unlike the thinly capitalised dot.coms it is hard to see a change in Amazon and Apple or Microsoft’s dominance of their sectors anytime soon. Wierzycka has never suggested that the Faang ETF — or even the 4IR ETF — should be a core investment, just a convenient way to tilt a portfolio.
Schroders head of research Duncan Lamont says before we get too worked up about the Faangs, 16 of the best 25 best performing large caps in the world have been outside the US. The second best was in what we would consider to be a sunset industry, gold mining — Kirkland Lake Gold in Canada. The best performer was not a Faang but the unshowy Advanced Micro Devices, in the semiconductor sector. And in spite of its secular decline, Japan still had four of the 25 winners, headed by Lastertec, a semiconductor testing business that made more than 10 times the capital gain of Apple.
It is now the first time since the late 1960s that all five of the largest shares listed in the US have been in the same sector. We can understand why giant oil companies such as Exxon were among the largest shares, as well as General Electric, when we unpack its component parts. But anybody under 35 will be puzzled to see that IBM was the largest share by market cap in 1970 and 1980, and third in 1990. Eastman Kodak, as irrelevant as Blockbusters today, was more valuable than Exxon in 1970.
If Joe Biden is elected US president there is at least a threat that the big techs could be split up. There is a precedent for this — the dominant US telecoms operator AT&T was divided into regional so-called Baby Bells. And there was once talk of Microsoft being split into Baby Bills. It would certainly take the glint off the Faangs.
• Cranston is a Financial Mail associate editor.
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