What are FAANG stocks?

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FAANG stocks include some of the most popular and profitable stocks on the market over the last decade or so. But what are FAANG stocks? It’s an acronym that stands for the stocks of the following companies:

  • F – Facebook (FB)
  • A – Apple (AAPL)
  • A – Amazon (AMZN)
  • N – Netflix (NFLX)
  • G – Google (GOOG and GOOGL)

These companies continue to be bellwethers of the tech industry, representing a high-growth sector of the economy. Each has returned investors a ton of money over time, and these stocks are likely to remain popular staples of investors’ portfolios for the foreseeable future. (As you can see, the acronym is outdated, since Google changed its name to Alphabet in 2015.)

In fact, originally this group was called FANG stocks, standing for Facebook, Amazon, Netflix and Google, but was expanded to include Apple as a second “A.” Sometimes Microsoft is also included in this group, with the acronym expanding to FANMAG, a more pleasant abbreviation.

Why are FAANG stocks so popular?

FAANG stocks are popular for a number of reasons, perhaps the most important being their strong record of growth and their potential future growth. Their total value is in the trillions of dollars, and many investors have at least a tiny portion of these companies in their portfolio by virtue of owning an exchange-traded fund or mutual fund, where these are popular holdings.

Popular holding for indexes

FAANG stocks comprise significant chunks of major indexes such as the Standard & Poor’s 500 index (S&P 500), a collection of around 500 of America’s largest companies. Here’s the breakdown of FAANG stocks in the S&P 500 index as of May 24, 2021, according to data from Slick Charts:

  • Facebook – 2.2 percent
  • Apple – 5.6 percent
  • Amazon – 3.9 percent
  • Netflix – 0.6 percent
  • Google/Alphabet – 3.9 percent

In other words, these five companies alone make up more than 16 percent of the index.

The weighting of these companies is even higher in the Nasdaq 100 index. Here’s their breakdown in this major tech index as of May 21, 2021, according to Slick Charts:

  • Facebook – 4.0 percent
  • Apple – 11.0 percent
  • Amazon – 8.4 percent
  • Netflix – 1.7 percent
  • Google/Alphabet – 7.7 percent

In total, the FAANG stocks make up nearly 33 percent of the index’s value. Add in Microsoft (at 9.7 percent), and you have just six firms comprising nearly 43 percent of the index.

Every time you buy funds based on these indexes, you’re purchasing a similar size stake in FAANG stocks. (If you already own stakes in these individual stocks, your portfolio may not be as diversified as you think.)

Growth record

While consumers may be familiar with these tech names, they may not be aware of the huge returns generated by these five companies from the start of 2011 to the end of 2020.

Company Total return (percent) Annualized return (percent)
Facebook 611* 25.5
Apple 1,245 29.7
Amazon 1,725 33.7
Netflix 1,990 35.5
Google/Alphabet 488 19.4

Source: Yahoo! Finance. * From IPO date of May 18, 2012

If you had put $10,000 into Netflix at the end of 2010, you’d have more than 20 times that amount of money at the end of 2020 – a truly incredible return. Even the low end of the returns is attractive. And the annualized returns are about as good as you can find in the market.

These growth records are built on each company’s expanding global empire, though sometimes people don’t realize the companies have other businesses under the corporate umbrella.

For example, while Facebook is known for its namesake social media site, many consumers aren’t aware that it also controls the WhatsApp messenger and Instagram social media site.

Similarly, Amazon is not just an ecommerce giant, but also controls AWS (Amazon Web Services), which is a leading player in cloud computing.

Meanwhile, Netflix has expanded from a distributor of other people’s content to a producer and distributor of its own content.

Of course, consumers are familiar with Apple and Alphabet for their phones and search service, respectively. But even these companies are more than just those key products.

Bottom line

FAANG stocks have been among the most popular stocks in the market for a while and have delivered among the most tantalizing returns over the past decade. While the future likely won’t look quite as rosy as the past, these stocks look set to remain a mainstay of key indexes, meaning that investors will likely continue to own them as part of ETFs and mutual funds.

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Editorial Disclaimer: All investors are advised to conduct their own independent research into investment strategies before making an investment decision. In addition, investors are advised that past investment product performance is no guarantee of future price appreciation.