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Investment Evidence Based Investing Dimensional

Have the Tech Giants Been DeFAANGed?

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Awaken Investments of Aligned Capital Partners

By Wes Crill, PhD Head of Investment Strategists and Vice President, Dimensional Fund Advisors

Investors expecting FAANG1 stocks to continue the extraordinary performance of recent years must be disappointed by their returns in 2022 (see Exhibit 1). Four of the five stocks lagged the broad US market through May 5, with Amazon, Facebook (now known as Meta), and Netflix suffering big-time losses. The group collectively underperformed the Russell 3000 Index2 by nine percentage points.3


EXHIBIT 1

Bite Wounds

Cumulative returns of FAANG stocks, January 1, 2022–May 5, 2022

Source: Bloomberg. Facebook and Google now known as Meta and Alphabet, respectively.


This year’s swoon came on the heels of a stellar decade—the FAANGs returned 28.02% per year from 2012 to 2021. Their returns dwarfed the performance of the Russell 3000 Index, which returned 16.3% per year.

This year’s reversal is a reminder that investors should be cautious when assuming past returns will continue in the future. FAANG stock performance in recent years reflected these companies achieving financial success that exceeded most investors’ expectations. That’s in the past, though. Even if these companies sustain their success (and things have been looking gloomy for Netflix!), it may not translate to spectacular future returns. Excellence from the FAANGs may now be the expectation and not the basis for above-market returns.


FOOTNOTES

1 Facebook-parent Meta; Amazon; Apple; Netflix; and Google-parent Alphabet.

2 Frank Russell Company is the source and owner of the trademarks, service marks, and copyrights related to the Russell Indexes. Indices are not available for direct investment; therefore, their performance does not reflect the expenses associated with the management of an actual portfolio. Index has been included for comparative purposes only.

3 FAANG stock returns are computed as the average of Facebook (Meta), Apple, Amazon, Netflix, and Google (Alphabet share classes A and C) weighted by market capitalization at beginning of month.

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