What are FAANG Stocks?

| Updated
by José Oramas · 5 min read
What are FAANG Stocks?
Photo: Shutterstock

If you are interested in the stock market, you probably have already heard about FAANG stocks. This guide may help you find out more details about them and their performance.

Five popular and highly traded tech companies in the Stock Market – Facebook Inc (NASDAQ: FB), Amazon.com Inc (NASDAQ: AMZN), Apple Inc (NASDAQ: AAPL), Netflix Inc (NASDAQ: NFLX), and Google constitute the acronym FAANG. Google – Alphabet – is listed on Nasdaq with two share classes: GOOG and GOOGL. The first type allows voting rights. The latter shares are private, and their prices differ in the market.

It is not clear who coined the acronym. Different sources place the origin of the abbreviation in the US bank Goldman Sachs. Others think it was the journalist from the television network CNBC, Jim Cramer – an expert in the markets, host of Mad Money. But what is clear is that the term appeared in 2017. At that time, these companies – Apple jumped in later in 2018 – were listed on the Nasdaq and the Standard & Poor’s 500. They stood out from the rest of the market, giving rise to the creation of the acronym.

Although Microsoft Corporation (NASDAQ: MSFT) does not belong to the acronym, it is one of the top ten most traded companies in the Nasdaq and the S&P 500. There is an ever-going debate between investors and market analysts if Microsoft should be considered withing FAANG Stocks.

Should You Invest in FAANG Stocks?

Currently, large equity portfolios have FAANGs among their reliable values, accompanied by positive technical analysis. The upward trend will probably continue, incrementing the market capitalization of these companies.

However, FAANGs are not without detractors. Some investors argue that these companies are overvalued, and wonder whether investors should add them into their portfolios. Recently, FAANG shares have become wildly popular. Some even think that too much, which can lead to fears of massive price drops, and several investors may dismiss the acquisition of FAANG shares in favor of others.

In 2009, FAANG stocks returned 1,500 % in profits for investors. However, the performance of FAANG stocks has varied recently. For example, while Amazon’s share price continued to rise in 2020, Facebook’s share price fell since it hit a record high on January 29, 2020. Similarly, Google’s shares fell 34% in 2020, while Netflix’s share price continues to climb thanks to continued subscriber growth.

Retail traders have a hard time entering the FAANG market due to how expensive the stocks are. Other analysts would consider the technical issues with these companies, like the Amazon Footprint, or Facebook and Alphabet’s security concerns. Even so, these tech-giants continue to dominate the market, representing 1% of the Nasdaq, considering the Nasdaq has around 5,000 companies listed.

When investing in stocks, you should not consider past performance as an indicator of future price growth. Instead, you should research hard facts about each company’s share price before investing. Look for markers such as strong sales and earnings growth, while monitoring underlying market conditions. In recent months, new competition arrived for Netflix as Apple recently launched Apple TV, and other companies are launching their streaming service.

Despite their market falls, the FAANG has proven immune to viruses and pandemics, with excellent recoveries afterward. These companies experienced strong growth in recent months compared to the same period in previous years. You can expect a good growth forecast as they are more prepared for the new reality with the COVID-19 pandemic.

How Can You Invest in FAANG Stocks?

There are several ways to invest in FAANG stocks, but how you should invest will depend on your context and how you like to invest. As stated before, FAANG stocks are expensive and impractical if you’re not compromising a great amount of capital. How much a single share of one of these companies would cost? A single stock from Alphabet’s GOOGL would cost you $1,797 at the time of writing. Now consider that price if you want to buy several stocks. Apple is currently the cheapest one, with a market price of $130.

Luckily, you can own pieces of those shares with brokers, or using ETFs (Exchanged-traded Funds), mutual funds, or on indices.

Investing in FAANG Stocks with ETFs

You can easily trade FAANG stocks with FAANG-indexed ETFs, as there is no minimum investment, and you can buy a portion of a share. Investors buy whole numbers of shares, just like stocks, and each share usually has a small price. An ETF is a traded index fund. They are hybrids between a mutual fund and a stock. Formally, it is an investment fund. Buying shares in an ETF means buying several securities – just like a traditional investment fund – but listed on the stock market like a stock.

Investing with Mutual Funds

You can use mutual funds to invest in FAANG stocks. Several investors contribute to a common fund, so mutual funds allow small investors to access professionally managed investment portfolios, and diversify their investments.

Mutual funds accumulate money from several investors to invest in other financial assets, such as stocks or bonds. The value of the mutual fund depends on the value of the assets contained within the fund. Therefore, the performance of the fund will depend on the performance of the assets.

Investing with FAANG Index Funds

You can gain exposure to FAANG stocks by investing in funds listed on NASDAQ. The good thing about investing in stock indices is that they are easy to calculate. Monitoring and accessing related information is easy. You can invest in FAANG shares with little money as well. So investing in stock indices might be suitable for novice investors or if you don’t want to complicate your life too much.

Conclusion

Investing in FAANG stocks has pros and cons. Luckily, if don’t you want to expend hundreds – or even thousands – of dollars for just one or two shares with small return, a good option is to opt for diversification by replicating an index that includes the best companies from all sectors, including investing in new technologies to ensure stable growth in the future without assuming so many risks. Index funds and ETFs are excellent investment vehicles to invest in FAANG stocks without having to put at risk your entire savings.

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FAQ

Do FAANG stocks pay dividends?

Yes, there are ways to get dividends from FAANG stocks, like buying FAANG ETF funds. Keep in mind most funds will not give a considerable income, as these funds only pay 1-3%, relative to the exposure in each FAANG stock.

The most popular FAANG ETF funds are Invesco QQQ, Vanguard Growth ETF, and iShares Russell 1000. These three companies pay around 1.80 % in Annual Dividend Rates.

Other FAANG ETF funds pay more, like the closed-end, tech-focused Columbia Seligman Premium Tech Growth Fund (listed STK). Currently, STK 6.5% in dividend yields. The fund holds stocks from Apple, Alphabet (Google), and Microsoft, although not listed in the FAANG acronym.

Despite listed on the FAANG acronym, Amazon doesn’t pay dividends. It never has since 1997. The underlying idea of Amazon is expanding itself as the top e-commerce company. Thus, increasing stock prices and driving more potential investors into buying Amazon’s stocks.

Why is Microsoft left out of FAANG?

Originally, Microsoft didn’t belong to FAANG as the first focused mainly on a B2C (Business to Customer) frame. Rather, Microsoft stayed between enterprises. The case for Microsoft was the lacking innovation in the tech sector in 2011, hardly making x1.5 for investors. But things changed in 2014 when Satya Nadella, an Indian-American executive, succeeded Steve Ballmer.

Since then, Microsoft quadrupled its revenues and became a top tech company for investors. So much that Investment bank Goldman Sach coined the term “FAMG” leaving Netflix out of the acronym. In conclusion, people tend to confuse FAANG with FAMG. The only difference is the inclusion of Microsoft in the latter.

What are ETFs?

ETF stands for Exchanged-Traded Fund. ETFs are investment vehicles whose policies seek to replicate the behavior of the assets that make up a stock index. These can be fixed income, equities, currencies, raw materials, or other financial assets.

We can define them as a hybrid financial asset since they maintain similarities with traditional investment funds in themselves but also with stocks. ETFs can diversify funds and liquidity of stocks. In other words, they are collective investment institutions (CII) whose shares are listed on the stock market, being settled and negotiated in real-time.

Likewise, this is the fundamental difference ETFs have with classic funds. With traditional funds, the net asset value is not established until the session closes, at which point it is possible to trade with them, while in ETFs, the theoretical net asset value varies continuously as the reference does. Thus, the investor can buy and sell at any time.

In the case of stocks, the divergence is that exchange-traded funds through a single transaction invest in a highly diversified portfolio (as much as the index they take as reference).

What is FANG?

FANG refers to the current top tech companies in the stock market. The acronym is composed of Facebook, Amazon, Netflix, and Google (Alphabet). These companies composed 15% of the S&P 500, with an approximate market cap of $5.5 trillion.

What is FANGMAN?

FANGMAN is an acronym composed of Facebook, Apple, NVIDIA, Google, Microsoft, Amazon, and Netflix. It was coined by investors who were exploring the idea of combining the strength of these companies in the stock market.

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