It has been a tumultuous month for Facebook stocks as inquiries into data privacy breaches reached the ranks of the US Congress. The shares are already trading 16% below their February high, and the rout in tech stocks generally has dragged the US indices down. Overall (according to the Wall Street Journal) the FANG (Facebook, Amazon, Netflix and Google (Alphabet)) stocks have together shed more than $200 billion in market value since mid-March and Facebook, Amazon and Alphabet are still off 10% or more over that time, compared with a more modest 2.9% drop for Netflix, which didn’t slide as much as peers.
This raises a number of issues, one of which is whether the grouping was in fact a meaningful one, or merely a coincidental one. It echoes another popular stock/regional grouping the BRICs, which has recently been torn asunder as Brazil and Russia appeared to have significantly different trajectories than India and China. Such groupings are also somewhat dangerous – albeit catchy, as they tend to sweep up in a form of a rising tide stocks and themes that have no business being lumped together. They allow investors to mistakenly rely on a short cut and cut out careful, detail and nuanced analysis. It is often in this detail (and complexity) that the truth of investment prospects is revealed, and investors maybe should be more skeptical of catchy strategist acronyms.
But back to de-fanging the FANGS, it is notable that Facebook’s travails have hit that stock but that Amazon has been relatively unscathed for the time being despite attracting Presidential scrutiny (and ire) because of its relationship with the Post Office. The other notable point is that the rise of this group underscored the huge concentration in markets and the “narrowness” of the recent surge in markets. The WSJ also reports that “Amazon and Netflix, which are up 22% and 62%, respectively, for the year, accounted for more than 30% of the S&P 500’s 2018 gain at one point in February, according to S&P Dow Jones Indices. That contribution slipped to about 24% as of April 6. Facebook, meanwhile, is among the biggest drags on the index, overshadowing the declines of even General Electric Co.”
This same concentration has been blamed for many active management woes – as large cap growth managers in particular have failed to capture the upside in markets as they found it hard to justify the weighting in the core tech stocks that their growth in the index was contemplating. As the FANGS have lost some of their sheen, US large cap active managers have protected capital during some of the downside volatility so far this year and may be (finally?) starting to prove their worth in the current cycle. Many active managers are now starting to drop Facebook from their holdings, even as they hold on to the other tech titans, and it seems that some differentiation is starting to emerge in discussions.