FANG Stocks
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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Magnifi is changing the way we shop for investments, with the world’s first semantic search engine for finance that helps users discover, compare and buy investment products such as ETFs, mutual funds and stocks. Open a Magnifi investment account today.
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.
Quantitative Investments
Do you know that Quantitative Investment Strategies have significantly outperformed the S&P 500 in bull and bear markets over the past 20 years?
In a world where technology has changed nearly every facet of our everyday life, fund managers and investment banks have aimed to get a leg up on their peers, employing quantitative analysts (“quants”) to build superior trading strategies. The work that these quants perform is called quantitative analysis. It involves building complex computer models to parse through massive data banks to build trading strategies. These strategies can search for specific trading patterns to predict the direction of securities, and or specific ratios or combinations of ratios like Price-To-Earnings (P/E), and Debt-To-Equity to spot inefficiencies in the market before others do.
The ultimate goal of these proprietary models is to generate superior returns while maintaining rigid risk control. There are more than 65 quant ETFs to choose from, as well as a large number of quant mutual funds.
Why use Quantitative Investment Strategies?
Given that computers can analyze large groups of investments simultaneously and implement screening processes to rank them, they clearly have a significant advantage over the average individual investor or research team. Not only can they crunch enormous volumes of data at a rapid pace, but they can rank this data objectively. This is a massive benefit, as the results derived from the models are void of confirmation bias. Of course, the benefit of consistency and objectivity is only as good as the quants running the strategy.
The other major advantage is discipline, with quant trading strategies not subject to emotion when executing trades. Allowing human emotion to seep into a given strategy can weigh significantly on investment returns and is often the downfall of the average individual investor. There is clear evidence of this outperformance in historical returns, with the average quant fund returning more than 15% annualized over the past twenty years, well above the returns of the S&P-500 (7%). The best quant funds have returned closer to 19% annualized over the past 20 years, and have also outperformed since the secular bear market bottom of 2009.
While there are clear benefits to quantitative strategies, there are risks, with the major one being the shortcomings of relying on historical data. As we saw in 2020, the humans beat the quants with the top-10 performing hedge funds dominated by stock-pickers with returns ranging from 30% to 74%. This shouldn’t be overly surprising as there’s no way to model a once-in-a-century event like a global pandemic.
Quantitative vs. Qualitative
Quantitative analysis focuses on information about quantities, and therefore numbers.Quantitative Investment Strategies are governed by sets of rules and are typically rigid, aiming to deliver higher returns by uncovering inefficiencies in the market. Many of these models typically involve analyzing balance sheets, cash flow statements, and ranking stocks based on relative attractiveness to build portfolios. Other Quantitative Investment Strategies use patterns to predict market direction, or combining dozens of inputs together. These strategies can include mean reversion and momentum, relying mostly on technical signals for their inputs.
Qualitative analysis focuses on data that is descriptive, which can be observed but not measured. Qualitative Investment Strategies focus on the qualitative characteristics of both stocks and assets, and this analysis is much more subjective. This could involve personal views on a currency or global market related to a projected shift in monetary policy or taxation, or views on a stock’s eventual profitability based on its new product, or the hiring of a new Chief Executive Officer or Chief Operating Officer.
While quantitative funds have outperformed many non-quantitative funds over the past 20 years, the importance of qualitative analysis should not be minimized. This is because even if a company has a superior product or service, it could fail miserably without the right management team, the right management style, entry into the wrong market, or adverse upcoming changes in government regulation/taxation. Given the ever-changing landscape and disruption to many industries, qualitative analysis can often spot potential value traps much better than a quantitative strategy that dispassionately focuses solely on financial statements, and not the big picture.
How to Invest Using Quantitative Investment Strategies
The massive benefits of quantitative investment strategies cannot be understated, with the average quant fund easily outperforming the S&P-500 over the past 20 years, with a (+) 15% annualized return. Some of the major pros and cons worth considering are as follows:
PROS
- Less scope for human error, with mathematical models taking care of stock selection, and risk control.
- Dispassionate decision making, with investors not missing out on opportunities due to their inherent biases or the biases of their fund managers.
- Systematic transaction timing, with quant strategies being able to navigate volatile markets without being exposed to fear or greed, which plagues most individual investors, and even some of the best fund managers occasionally.
CONS:
- Quant funds are only as good as the humans that run them, so quant fund managers should be vetted just as much as the strategy.
- Quant funds might be able to decipher the past 50 years better than any group of humans, but they struggle to predict the next 10 years, and lack the creative abilities of typical fund managers.
- Quant funds are less likely to pay attention to important qualitative aspects like company culture, leadership quality, and the regulatory, environmental landscape, which cannot be ignored in an increasing ESG-focused market landscape.
Given that there are dozens of different quantitative investment strategies out there, and tens of thousands of different variations, knowing which quant strategy to employ is not easy. The solution for those looking to profit from quantitative investment strategies is investing in quant ETF and mutual funds with proven track records and decades of data, which have uncovered the superior blend of strategies to fit most market cycles. A simple search on Magnifi indicates numerous ways for investors to access Quantitative Investment Strategies with low fees.
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Magnifi is changing the way we shop for investments, with the world’s first semantic search engine for finance that helps users discover, compare and buy investment products such as ETFs, mutual funds and stocks. Open a Magnifi investment account today.
The information and data are as of the October 27, 2021 (publish date) unless otherwise noted and subject to change. This blog is sponsored by Magnifi.
Space
A new space age is upon us. For the first time in human history, tech startups and private companies, spearheaded by some of the wealthiest entrepreneurs in the world, are sending humans into space.
The investing opportunities the space industry offers are massive. From space tourism to satellite broadband, mining to national security, in the coming decades an entire space economy will be created.
What is the Space Industry?
The space industry is composed of companies that manufacture components that will go into the Earth’s orbit and beyond, as well as the services associated with space travel. There are three major categories in the space industry: spacecrafts, ground support equipment, and the launch industry.
Spacecrafts are vehicles, manned and unmanned, used in space. These vehicles support a variety of applications, such as exploration, communications, navigation, and transportation. The industry includes satellites, space probes, cargo transporters, rovers, and software.
Ground support refers to the equipment used to service spacecraft. It includes manufacturing of control stations, mobile terminals, VSATs, gateways, and specialized equipment manufacturers.
The launch industry focuses on the process by which spacecraft are launched from our planet into space. It includes equipment, machinery, and launching vehicles, as well as the services that go along with it.
Why Invest in the Space Industry?
The space industry is growing rapidly. Morgan Stanley estimates that the global space industry could generate revenue of more than $1 trillion or more in 2040, up from $350 billion, currently. Bank of America’s forecasts are even more ambitious, estimating a $1.4 trillion-dollar market by 2030.
These impressive growth estimates are a direct result of the changes in the economics of space travel. According to NASA, launch costs that had held steady over the 30 year period between 1970 and 2000 have fallen by a factor of seven. It now costs just $432 to send one pound into low earth orbit in 2020, compared to an estimated $38,734 in the early 1980s.
Costs have plummeted due to the creation of equipment and vehicles that are more reliable, adaptable, and efficient. Many of the rockets that are launched today are reusable and the size of satellites have shrunk dramatically.
The rapid decline in the cost of satellites will soon bring a surge in the number of orbiters collecting data. That data can then be used by businesses for everything from predicting the weather to facilitating insurance claims.
Another potential opportunity is mining in space. NASA recently awarded contracts to four companies to extract tiny amounts of lunar regolith (loose unconsolidated rock and dust) by 2024. This could open up the potential for both moon mining, and asteroid mining, with work already being conducted on NASA’s Psyche Spacecraft to study an asteroid with an estimated mineral value measured in the quadrillions of dollars.
As a result, commercial space ventures are drawing record levels of funding as investors rush to tap into the market. Total venture capital investment in the space industry increased by 95% to $8.7 billion from 2020 to 2021. This increase of investment is an indication that private capital markets understand the potential of the space industry.
How to Invest in the Space Industry
Selecting individual stocks in the space industry can be challenging. That’s because most of the public names offering exposure to the industry have limited exposure as a percentage of future revenue, and those laser-focused on conquering the industry are private. This is why the best solution is gaining exposure to the sector through space-focused ETFs. A simple search on Magnifi indicates numerous ways for investors to access these funds with low fees.
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Magnifi is changing the way we shop for investments, with the world’s first semantic search engine for finance that helps users discover, compare and buy investment products such as ETFs, mutual funds and stocks. Open a Magnifi investment account today.
The information and data are as of the October 14, 2021 (publish date) unless otherwise noted and subject to change. This blog is sponsored by Magnifi.
Technology
Why should you invest in Technology?
The history of technology is the story of humankind. It covers the expanse of
humanity’s efforts to control its environment for its benefit by creating tools.
Tools/technology are things constructed to aid humans to solve problems and improve their lives.
One of the earliest applications of technology was the invention of the wheel. This basic, simple tool revolutionized the lives of humans, making it easier to go from one place to the other.
Fast forward to today and technology (which is simply applied science) of all sorts has infiltrated every aspect of our lives and is the major force for economic growth.
What Is the Technology Sector?
The technology (tech) sector includes companies involved with the research, development and distribution of technologically-based goods and services. The technology industry today is incredibly broad, covering all sorts of scientific disciplines.
The tech sector is categorized into three major industry groups: software and services, technology hardware and equipment, and semiconductors and semiconductor equipment. These three industry groups are further divided into industries and sub-industries.
Another way investors categorize the tech sector is by determining who the intended user of the product or service being offered is: consumer or a business? Consumer goods could mean anything from mobile devices, wearable technology, household appliances and electronics. While businesses rely heavily on technology to create enterprise software, streamline their systems, host their databases, store their information, etc. Modern businesses could not exist without technology.
Why Invest in Technology?
The world has undergone a technology revolution every 40 to 60 years since the industrial revolution began in 1760, from steam power and railways, to steel and electricity to cars, roads and aviation.
Each of these technological advancements brought sweeping economic change. They spawned new business models and created waves of new entrepreneurs. They also displaced old industries, triggered speculative financial bubbles and sometimes even brought social and political upheaval.
Today, the impact of the information and communications technology revolution is arguably the greatest ever. That has led to one undeniable truth: technology bears a far greater influence on our daily lives and investment portfolios than it ever has.
It’s near impossible to design a well-balanced investment portfolio without including tech stocks, as it is by far the largest sector of the U.S. stock market. But there is no reason to avoid it. There is no sector of the modern American economy that technology does not touch and that does not rely upon the tech sector to improve its quality, productivity, and profitability.
Many tech stocks have higher valuations than companies in other sectors. But for good reason. More than anything else, tech companies are associated with innovation and invention. Investors expect big money to be spent on research and development and they also expect to be rewarded by a steady stream of growth, fueled by a pipeline of innovative new products, services, and features.
Of course, there are risks. The tech sector is highly competitive, so any tech firm is at risk of having its product or service replaced by one from a competitor that is better.
However, tech stocks also promise significantly higher than average growth when compared to other equities.
This has been the prevailing trend for decades now. Throughout much of this century’s historic bull market, tech stocks have been leading the way, with the biggest tech stocks outperforming the S&P 500 index over the past 10 years.
How to Participate in Tech Investing
First, invest in what you like. Technology is an intriguing topic to many people, which makes investing in tech stocks interesting. Successful investing involves detailed research. When you enjoy the topic of your research, you’re more likely to do the legwork required to make educated investing decisions.
Second, keep in mind that the tech sector is massive and broad. It covers a wide range of companies in different stages of development. So there is plenty of room for diversification within the tech sector (you can read our articles on AdTech, Biotech, Fintech, Nanotechnology, or Insurance Technology).
If you’re a novice investor or you simply don’t have the time to do the research it takes to pick stocks individually, you may want to look toward technology-focused index funds, exchange-traded funds (ETFs), and mutual funds. A simple search on Magnifi indicates numerous ways for investors to access tech funds with low fees.
Unlock a World of Investing
with a Magnifi Account
Magnifi is changing the way we shop for investments, with the world’s first semantic search engine for finance that helps users discover, compare and buy investment products such as ETFs, mutual funds and stocks. Open a Magnifi investment account today.
The information and data are as of the October 13, 2021 (publish date) unless otherwise noted and subject to change. This blog is sponsored by Magnifi.
Innovation
What is Innovation?
The desire to innovate is a basic human characteristic, defined as the creation, development, and implementation of a new product, process, or service, with the goal of improving efficiency and effectiveness. From the compass that dates back to 12th century China to the steam engine that fueled the Industrial Revolution and the discovery of electricity and the invention of transistors, innovation has improved our lives exponentially.
More recently, innovation has come in the form of the internet, artificial intelligence (AI), clean energy transportation, and autonomous vehicles. Since its humble beginnings in the ‘90s, the internet has grown to 4.6 billion users, with over 5 billion mobile phone owners and more than 2 billion of these users shopping online each year. AI technologies are transforming how our society communicates and operates by way of virtual assistants, manufacturing robots, social media monitoring, and proactive healthcare management. Meanwhile, battery-run electric vehicle sales are estimated to hit 29% of all cars sold by 2030, paving the way to a cleaner future globally. And autonomous vehicles, also known as self-driving cars, will reduce traffic and parking congestion, decrease accidents caused by human error, and curtail pollution.
Innovative technologies will disrupt major industries, leaving many of the former players obsolete. With modern-day Edisons’ like Elon Musk, Sergey Brin, and Marc Benioff continuing to sprout up and the American Dream is still alive and well, innovation is here to stay and will only accelerate as the years go by.
For investors, the opportunities to participate span across many industries, with quadruple-digit returns often waiting for those able to hunt down the leading-edge companies in the groups experiencing the most significant innovation. For those that neither have the time or expertise to analyze a multitude of companies, exchange traded funds (ETFs) are excellent ways in which to invest in these innovative industries.
Why Invest in Innovation?
People are often resistant to change, but with multiple secular trends changing the landscape of our world rapidly, investing in innovation is essential to staying ahead of the curve. This is evidenced by the average tenure of S&P-500 companies sliding from 33 years in 1964 to 24 years in 2016, with expectations of being just 12 years before the end of this decade. While antiquated companies whose stocks have provided quadruple-digit returns in the past might be familiar to investors and easy to understand, they typically lag the performance of their more innovative peers, with the best-returning stocks being those 15 years or less out from their IPO date. So, while easy to understand and familiar technologies might be suitable for everyday life, they’re inferior in the ever-changing investment landscape. This means that if investors want to place themselves in the right proverbial fishing holes for market-beating returns, keeping a close eye on new trends and innovative technology is imperative.
What Are the Top Innovation Trends?
When it comes to the top innovation trends, there are dozens of opportunities. We’ve compiled a list of what looks to be some of the most relevant opportunities and areas investors should be focused on. Each of these trends have a variety of ETFs for investors to participate in:
Artificial Intelligence (AI) has arrived in a big way though many people are unaware how it affects their everyday lives. Current applications include online shopping & advertising, vehicles, and even our smart appliances, with more advanced applications being cybersecurity, and healthcare with improved diagnostic pathology. The global AI market is projected to reach $191.60 billion by 2025, growing at a CAGR of 36.68% over the forecast period.
Autonomous Vehicles are currently at an early stage but it is an emerging trend, with many companies battling it out to take over market share. A significant benefit of these self-driving vehicles is the elimination of human error. Government data has estimated that driver behavior and error are factors in 94% of crashes. Increased levels of autonomy would reduce human error, making the roads safer for everyone. The other major benefit is reduced congestion and an expected decrease in pollution & emissions.
Blockchain is one of the least understood but one of the most significant innovations. It is a system of recording information in a way that makes it near impossible to hack or cheat the system. A blockchain is essentially a chain of data blocks with contained information that is recorded, made public, and cannot be altered. Annual spending on blockchain solutions is expected to come in above $15 billion by 2023. If adopted, disruption opportunities are widespread, with one target being the banking industry by disintermediating services that banks provide.
Genetics is expected to be a major area of innovation in the next decade, with genetics being a branch of biology that deals with the heredity and variation of organisms. Gene editing has been called the most significant innovation of the decade by some sources, given that it allows scientists to change the DNA of organisms, including plants and animals. In humans, this offers the ability to treat inherited diseases, with the first application being in eye surgery to treat inherited blindness. Other significant opportunities include agriculture, with the ability to increase yields and quality and plant drought resistance for crops.
Industrial Robotics is another innovation that has arrived quicker than most expected, providing a massive boost to productivity for corporations. Unlike humans, robots don’t need incentives to perform at their full potential, don’t need sleep, and can keep up a consistent pace 24/7. While opinions are divided on robotics given that it displaces jobs at many plants and warehouses, the two major benefits they do offer outside of cost savings for corporations are safety and precision. In mining, it’s much safer to send robots one mile below the surface to carry out tasks, and in healthcare, precision is everything when it comes to surgery. In a world where investors demand higher profits and margins, the opportunities across dozens of industries will continue to grow.
Virtual and Augmented Reality is one of the newest avenues of innovation, with VR offering a complete immersion experience using a headset and AR being an interactive experience of a real-world setting with the objects being enhanced through the use of a smartphone, like the Pokemon Go craze in 2016. The most obvious application is gaming, but many other industries are adopting AR, including manufacturing, mining, education, and travel. In the latter case, consumers now have access to a 360-degree tour of hotels, restaurants, and tourist spots to give them an idea of what to expect. Some estimates project a 40% compound annual growth rate looking out to 2028 for AR alone, with the potential for this market to reach a size of more than $300 billion.
How to Invest in Innovation?
Given that there are hundreds of innovative companies out there and the success rate is concentrated to only a tiny portion of the group, it is essential for investors to diversify their holdings. This is especially true given that the path to success is quite bumpy for even the largest and most successful companies, with the best evidence of this being the turbulent climb to the top and bifurcated returns of the Internet and Communications stocks of the ‘90s. The solution to this issue is investing through Innovation-focused ETFs and mutual funds, allowing one to participate in the upside of innovation, without taking on the significant risk of picking the laggard or company with a fatal flaw in an emerging industry. A search on Magnifi indicates numerous ways for investors to access Innovation with low fees.
Unlock a World of Investing with a Magnifi Account
Magnifi is changing the way we shop for investments, with the world’s first semantic search engine for finance that helps users discover, compare and buy investment products such as ETFs, mutual funds and stocks. Open a Magnifi investment account today.
The information and data are as of the July 23, 202 (publish date) unless otherwise noted and subject to change. This blog is sponsored by Magnifi.
