What are the FANG stocks?

The term FANG stocks was coined by CNBC’s well-known “Mad Money” host, Jim Cramer, in 2013. It is now widely used by market commentators, analysts and investors.

“FANG” is an acronym that refers to four of the world’s largest and most popular stocks: Facebook (which is now Meta), Amazon, Netflix and Google (which is now Alphabet). In 2017, Apple was added by many Wall Street analysts to this acronym, creating “FAANG.”

What Is FANG?

FANG stocks are all well-known and richly-valued technology companies that have shown extraordinary growth in recent years in both revenues and profits. The 5 FAANG stocks constitute a market cap of over $7 trillion.

Because of their large market caps, and since tech is seen as the cutting-edge sector for U.S. economic growth, the FANG stocks have a huge influence on both the NASDAQ index and the S&P 500, and are seen as an indicator of the health of the stock market as well as the economy.

So if you’re a passive index investor, you have a major exposure to FANG stocks whether you know it or not.

And while their business models do vary, each company has one common trait: the use of advanced technologies, such as artificial intelligence, to acquire and retain users.

These companies are all great beneficiaries of the network effect. This is the concept that the value of a product or service increases as the number of people who use that product or service increases.

Each of these companies has an enormous user-base, which:

• Generates more value for their products
• This leads directly to seller services becoming more attractive to third-party merchants
• All of this, in turn, leads to valuable data analytics and feedback to drive content and services

Bottom line – their extensive network of subscribers, members and users gives these companies an enormous competitive advantage.

Why Invest in FANG?

These companies also share another trait… despite exhibiting growth stock behavior, FANG stocks are less volatile than many stocks. When the stock market rebounds after a dip, it is these stocks leading the charge.

It is this relative stability – along with delivering superior rates of return over many years – that has made these stocks so attractive to investors.

Over the past decade, the FANG stocks have grown faster than the overall S&P 500 or the more tech-focused NASDAQ. These companies have grown to be the top stocks on the S&P 500 through innovation and service diversification, enabling them to weather market changes and recessions.

For example, during the pandemic in 2020, FANG stocks were up 43% compared to the rest of the tech sector that lost around 4%.

That’s why this group of stocks has become a barometer of the investment health of the overall technology sector.

How to Invest in FANG?

To gain exposure to FANG, investors may want to invest in the individual FANG stocks, options, or FANG ETFs.  While most FANG ETFs are not exclusive to FANG stocks, the FANG stocks heavily influence the performance of the fund. And using an ETF may be a less volatile way to gain exposure to these stocks.

For help finding FANG stocks-related investments, make sure you check out the magnifi.com website to help you find the right ETF to meet your investment goals.

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The information and data are as of the January 17, 2022 (publish date) unless otherwise noted and subject to change. This blog is sponsored by Magnifi.