The US technology giants have been among the biggest winners from the accelerating digitisation in the workplace and across the economy driven by the COVID-19 pandemic, but doubts are starting to creep in that share prices might be getting overvalued.
Facebook, Amazon, Apple, Netflix, and Google – collectively known as the FAANGs – as well as other technology companies have reached share price highs during the summer with some commentators predicting a cloudy short-term outlook and a tough time for share prices.
The FAANGs – the acronym was originally FANG in 2013 before Apple was added to the mix in 2017 – are well-known for the growth they have achieved in revenues and profits which has translated into share prices of each member more than doubling over the past five years.
They currently account for around 17% of the S&P 500 and up to a third of the Nasdaq 100 which is the reason for some of the potential share price weakness concerns as worries about rising inflation and potential action from central banks to raise interest rates in an effort to stop economies overheating could hit valuations.
But the fundamentals remain strong – growing use of computers, e-commerce, the Cloud, streaming and the switch of advertising online is driving growth in the technology sector. The combined market capitalisation of Google, Amazon, Facebook, Apple, and Microsoft at around $7.5 trillion means that if it were a country, it would be the third largest economy in the world just behind China.
Past performance is no guarantee of future performance but GraniteShares studies among professional investors and UK retail investors shows strong support for the growth prospects of the FAANGs which ought to translate into increased investment. GraniteShares launched the world’s first FAANG ETP earlier this year along with other products offering access to GAFAM – Google (technically Alphabet) Amazon, Facebook, Apple, and Microsoft – as well as FATANG – Facebook, Amazon, Tesla, Apple, Netflix, and Alphabet. The FAANG ETP – ticker FANG – as well as GAFAM – ticker GFAM – and FATANG – ticker FTNG – have outperformed the US market since launch on March 8th 2021.
The professional view on FAANGs
The study with hedge funds, wealth managers, IFAs, fund managers and institutional investors found more than two out of five (42%) say they will increase their own portfolios concentration of tech stocks over the next year with 12% planning to dramatically increase their exposure. However, there is some scepticism with 24% planning to cut tech investments while 23% will simply maintain their holdings rather than buy shares.
Nearly half (47%) advise retail investors to have more tech stocks in their investment portfolios while around a third (30%) believe retail investors should reduce their level of tech exposure and 23% say they should maintain current levels.
They are however more optimistic about the medium and long term prospects for share price growth in the US tech sector. Around 75% of those questioned said now is a good time to buy large US tech growth stocks for investors who take a medium term view over one to three years.
They are even slightly more optimistic about the long-term attractions of the FAANGs and the US technology sector. Around 78% believe it is a good time to buy large US tech stocks for the long-term defined as three to five years.
Retail investors are keen to get their teeth into FAANGs
Not all UK investors are convinced about the FAANG investment story, the research found. However more than half (51%) of regular share traders questioned said they expect the share prices of the FAANGS to grow over the next three years with just 11% predicting they will fall and 26% believing they will trade sideways.
More than two out of five (43%) expect the FAANGs to outperform the S&P 500 over five years while 20% believe they will not outperform the index and 37% do not know. There is less positivity about them outperforming the Nasdaq 100 over the same period but 36% still believe they will beat the index while 21% believe they will not and 43% do not know.
There is growing awareness about the FAANGs investment story – all of the companies are big names with consumers after all – and there is demand from investors to expand the FAANG acronym to include other major US technology stocks such as Microsoft and Tesla. Nearly half (47%) of UK retail investors would back an expanded FAANG sector while just 20% would oppose expanding the FAANG definition and a third (33%) do not have an opinion.
But retail investors are not backing US tech
A surprising finding from the study is that UK retail investors have yet to transform their FAANG enthusiasm into investment. Research found that investment levels in the US tech giants are surprisingly relatively low among regular UK share traders and investors are unsure about how to access the US tech investment story.
Around 40% of regular share traders in the UK say they have no exposure to US technology companies in their current portfolios. On average investors have around 8% of their portfolio invested in US technology stocks and less than one in 10 (9%) have more than 15% of their portfolio allocated to the US tech sector.
That is entirely sensible if investors want to diversify their portfolios and avoid concentrating too much on the US tech sector which clearly could run into problems and in the US as well as around the world with regulators regularly talking about action against FAANG members.
But another explanation may be that UK investors are unsure about how to invest in FAANGs despite their belief that the share prices are set for strong growth.
How to invest in FAANGs
More than two-thirds (68%) are not aware they can invest in FAANGs through Exchange Traded Funds (ETFs) listed on the London Stock Exchange. ETPs offer a pure way to gain exposure to top tech companies in the US market. Indices are equally weighted and rebalanced quarterly.
GraniteShares currently offers 54 exchange traded products (ETPs) listed on the London Stock Exchange. They consist of a suite of index ETPs tracking FAANG stocks and a suite of Short and Leveraged Single Stock Daily ETPs tracking some of the most popular companies in UK and U.S. markets. Leveraged products result in more volatile returns and may not be suitable for long term investor due to their higher risk. Leveraged ETPs allow traders to speculate on the short term price movement of a share, while using less capital to gain the same exposure.
The FAANG, GAFAM and FATANG product suite, offers long, short and 3X leveraged ETFs on FAANG, GAFAM and FATANG indices and can be traded in a single ticker symbol via ordinary brokerage accounts.
If investors are convinced about the US technology growth investing story over the next three to five years, they deliver a simple way of increasing portfolio allocations.
FAANG consists of Facebook, Amazon, Apple, Netflix, and Google while GAFAM includes Google, Apple, Facebook Amazon, and Microsoft and FATANG covers Facebook, Amazon, Tesla, Apple, Netflix, and Google.
ETPs offer a pure way to gain exposure to top tech companies in the U.S. market. Indices are equally weighted and rebalanced quarterly.
Comprehensive GraniteShares suite of ETPs on FAANG stocks
|GraniteShares FAANG ETP||FANG|
|GraniteShares GAFAM ETP||GFAM|
|GraniteShares FATANG ETP||FTNG|
Leveraged ETPs on FAANG indices
|Underlying Index||+3x Long||-3x Short||-1x Short|
UK Leveraged Single Stock ETPs
|Underlying stock||+3x Long||-3x Short|
|Lloyds Banking Group||3LLL||3SLL|
|Royal Dutch Shell||3LRD||3SRD|
US Leveraged Single Stock ETPs
|Underlying stock||+3x Long||-3x Short|
Capital at risk