The Year of FANG

The following is an excerpt from our Q4-2015 newsletter...

It’s impossible to neatly sum up a year in investing, but four letters provide a good start for 2015: FANG.

FANG stands for Facebook, Amazon, Netflix, and Google. The four tech companies comprise $1.2 trillion in value, roughly 5% of the S&P 500 index. Their returns buoyed an otherwise tepid U.S. stock market.

Without FANG, the S&P 500 would have posted only its second negative year in the last thirteen. In fact, absent just Amazon, the index would have been negative. As an aside, lest you think that these stocks represent a new tech bubble, reflect on how many of their services you use weekly if not daily.

Every year there are outliers ahead of the pack. But 2015 was particularly top heavy. The average S&P 500 company was down over 4% (before dividends). The Russell 2000, an index of small and mid-sized companies was down 5.7% (before dividends). That the S&P 500 had a positive return (after dividends) masks the reality that 2015 was a blah year for investors.

 

Even with FANG, the U.S. stock market was basically flat. And fixed income was even flatter. The Barclay’s Aggregate Bond Index returned 0.50%.

Still, the U.S. outperformed international markets yet again. In five of the last six years, the S&P 500 has bested international stocks (as measured by MSCI ACWI ex-US). Historically, U.S. outperformance occurs about half the time.

The outperformance of U.S. stocks vs. international stocks is cyclical.