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FAANG is an acronym for a select group of high-growth US technology companies, being Facebook (now Meta), Apple, Amazon, Netflix and Google (now Alphabet).
Jim Cramer, an investment pundit for news channel CNBC, first coined the abbreviation FANG in 2013, later becoming FAANG with the addition of Apple.
The FAANG stocks have risen in influence over the last decade and now feature among the most valuable and high-profile companies on the global stage. In 2022, Apple became the first company to hit a market capitalisation of $3 trillion, which, put into context, is more than the annual Gross Domestic Product figures – or GDPs – of France or Canada.
And the FAANG stocks have rewarded shareholders with large gains, delivering an average increase in share price of nearly 2,000% in the decade to November 2021. However, their share prices went into reverse last year, as economic uncertainty cast a shadow over lofty valuations.
We take a closer look at whether FAANG stocks have indeed lost their bite, and the outlook for the next generation of growth stocks, the MAMAAs.
Investing in the stock market is inherently risky, and doing so puts your capital at risk. You may not get some or even all of your money back. Nothing in this article is intended as or should be construed as advice.
What are the FAANG stocks?
The FAANG stocks comprise five high-growth, large-cap stocks, as follows:
- Facebook (now Meta): technology company that owns Instagram and WhatsApp among other platforms, as well as products and services related to the virtual reality ‘metaverse’
- Apple: technology company that designs and manufactures smartphones, tablets and personal computers, with brands including the iPhone, iPad and Mac
- Amazon: e-commerce retailer, manufacturer of electronic devices (including Kindle and Echo) and subscription and cloud services provider
- Netflix: entertainment services company, offering subscription-based streaming content, as well as original programming content
- Google (now Alphabet): technology company that offers web-based search, software applications (such as Chrome, Android and Google Maps) and cloud services.
What do the FAANG stocks have in common? Well, they’ve all delivered substantial growth in revenue, profit and share price over the last 20 years. And while they’re not all strictly pure-play technology companies, they each have technology at the centre of their businesses.
John Moore, senior investment manager at wealth manager RBC Brewin Dolphin, explains: “Acronyms are often an easy catch-all way to explain or concentrate on a certain part of the market or investment universe that might have relevance.
“FAANGs was about capturing growth in technology and innovation, which was concentrated on a few names at a high level.”
Why are FAANG stocks important?
The FAANG stocks haven’t just taken the stock market by storm, they’ve also transformed the industries they operate in. According to Meta, nearly 80% of active internet users regularly use at least one of its platforms, while Amazon boasts nearly 300 million customers worldwide.
Laith Khalaf, head of investment analysis at AJ Bell, comments: “Collectively, big US tech companies have disrupted traditional industries, revolutionised technology, and redefined consumer behaviour.
“They have demonstrated remarkable dominance in their respective industries, and largely exhibited strong and consistent earnings growth. Today, it’s hard to ignore the US tech titans given their vice-like grip over the very top of the S&P 500, the influential US stock index.”
Apple alone accounts for around 7% of the index due to its market capitalisation, and Amazon, Alphabet and Meta also feature in the top 10. As a result, any movement in the share price of the FAANG stocks has a significant impact on the S&P 500 and other US indices.
As this index is used as a bellwether for the US economy, a fall in prices of the FAANGs can also trigger a downward spiral in share prices across the stock market. It’s a similar story for global stock markets too, with the FAANG stocks accounting for more than 13% of the MSCI World Index.
This hyper-concentration of stock market returns has prompted concern among investors, as has the broader economic and political sway of the FAANGs. As a result, some critics have called for tighter regulation in the wake of scandals such as Meta’s misuse of customer data and claims of anti-competitive practices.
How have the FAANGs performed?
The FAANG stocks were highly popular with investors during the last bull run, as share prices soared on the back of the FAANG’s impressive growth in revenue and earnings.
As shown in the table below, all of the FAANG stocks (except Alphabet) have delivered total returns in excess of 1,000% over the last decade:
Mr Khalaf comments: “Over the past decade, FAANG stocks have soared, and market capitalisations have reached astronomical heights. The pandemic accelerated the ongoing digital transformation, providing a tailwind for FAANG stocks.
“The shift to remote work, online learning, and digital entertainment bolstered the demand for their products and services and, as lockdowns and social distancing measures took hold, the reliance on digital services soared.”
However, investors faced steep falls in share price in 2022, as rising interest rates and economic uncertainty took their toll on the valuations of high-growth technology stocks. Top of the list were Meta and Netfiix, which suffered a 70% peak-to-trough fall in share price during the year.
Mr Khalaf comments: “In 2022, investors became increasingly cautious about high valuations, leading to a rotation away from growth stocks.”
“FAANG companies, which had enjoyed significant growth in previous years, faced heightened scrutiny and profit-taking by investors seeking opportunities in other sectors.”
Has FAANG become MAMAA?
FAANG has gone through several adaptations since it was conceived, losing the “F” when Facebook changed its name to Meta, and then the “G” with Google to Alphabet.
There were also calls to remove Netflix, a relative minnow among the $1 trillion plus FAANGs with a market cap of only $200 billion. In addition, the company saw a decline in its market share due to stiff competition from the likes of Hulu and Disney Plus.
At one point, FAANG evolved into FANGMAN (with the addition of Microsoft and NVIDIA) but investors seem to have settled on the acronym MAMAA, for the time being at least.
Brewin Dolphin’s Mr Moore comments: “MAMAA is the new FAANGs. MAMAA stands for Microsoft, Alphabet, Meta, Apple and Amazon.
“This combination accounts for 23% of the S&P 500 and 44% of the [tech-based stock index] NASDAQ, surpassing the combined total value of the energy, materials, industrials and financials sectors.”
However, AJ Bell’s Laith Khalaf suggests MAANAM as another option: “Given its size and success, you also have to include Microsoft, which was excluded at the time the FAANG moniker was coined.
“For the ‘N’ you might even include the trillion-pound chip company NVIDIA in place of Netflix, which has dropped down the ranking tables somewhat. And some might even be tempted to include a T for Tesla.”
Which funds offer exposure to MAMAA stocks?
Investors can buy shares in the individual MAMAA companies. Investors also have the option of buying fractional shares (in other words, a percentage of an individual share) in companies with high share prices, such as Microsoft and Meta.
Alternatively, most US, global and technology funds – essentially, specialist versions of investment funds – offer some exposure to MAMAA stocks due to their weighting in these stock markets.
That said, it can be more challenging to find a pure play MAMAA fund. Brewin Dolphin’s Mr Moore comments: “The concentration on a few stocks makes an exchange-traded fund (ETF) or fund problematic.”
He suggests the GraniteShares FAANG ETP (exchange-traded product) which is equally weighted across the five FAANG stocks and is rebalanced on a quarterly basis.
Alternatively, Mr Khalaf highlights the iShares Core S&P 500 ETF as an option for the broader US stock market, or the Invesco EQQQ Nasdaq 100 ETF for more concentrated exposure.
However, he warns: “Investors should be wary of becoming overexposed to US tech though, as they may already have quite a lot in their portfolio and, with valuations riding high, there’s not a lot of margin for error for these companies.”
For investors looking to buy FAANG shares or funds, we’ve taken a look at our pick of the best trading platforms, ISA providers and SIPP providers.
What’s the outlook for MAMAA stocks?
In the near-term, further hikes in the base rate, together with economic uncertainty, may put downward pressure on the valuation of MAMAA stocks.
However, the MAMAA stocks look well-positioned to capitalise on longer-term growth trends., particularly given the potential of artificial intelligence (AI) to transform everyday life.
Mr Moore comments: “Whether FAANGs or MAMAAs, there is innovation and growth which should mean that they remain highly relevant, with AI being the latest part of this story to capture the imagination. NVIDIA is held up as the poster child of AI which is why MAMAA is more popular presently.
Mr Khalaf adds: “By leveraging their market position and deep pockets, the big US tech titans are positioned to capitalise on emerging technologies such as artificial intelligence, virtual reality, and blockchain.
“However, these stocks have already experienced significant growth, leading to high valuations, which could be trimmed if they start to falter. Market saturation, regulatory scrutiny and potential shifts in consumer preferences are factors that could impact their performance.”
As such, investors should look to diversify their portfolio across different sectors, as well as assets such as equities, bonds and property. This should reduce the impact of an individual company, or sector, underperforming on the overall returns for the portfolio.
