Are the FAANGs soon to plateau?

Technology has been the most popular sector following the launch of a significantly large volume of disruptors in recent years. Leading the pack of disruptors and technological advances are the five companies which make up FAANGs (Facebook, Apple, Amazon, Netflix and Google).

Discussed at ETF Stream’s Big Call: Technology Funds event was whether there is still potential for FAANGs to grow and if it was too late to join the party. Ben Rogoff (pictured, right), lead manager at Polar Capital Technology Trust, is confident all five companies will grow, but some more than others.

FAANG’s YTD Returns – Source: Bloomberg

Year-to-date, all five companies, bar Google, have offered returns in the double digits. A disappointing May resulted in performances getting hit, with Google’s YTD returns falling from 24.0% in April to 3.3%, as at 13 June. The biggest players this year have been Facebook and Netflix which, regardless of a bearish few weeks, have produced YTD returns of 33.5% and 29.8%, respectively.

Rogoff sympathises with Facebook saying the social media platform only ever receives bad publicity. Following security breaches and data leaks, Facebook has suffered numerous dips in recent years.

Rogoff said at the Big Call: “Facebook only ever gets negative press. [Chairman and CEO] Mark Zuckerberg explained recently that Facebook adds an incredible utility to an incredible number of people.

“At its peak, the British Empire accounted for roughly 23% of the world’s population. Facebook’s monthly users account for approximately 27%.”

Two companies which received notable recognition from Rogoff was Apple and Amazon but for different reasons. Apple, he says, is seeing its growth slowdown as the “smartphone industry is done”. The company is now relying on attaching more services to bring in revenue as it relies so heavily on its phones as the product accounts for two-thirds of Apples profits, according to Rogoff.

Apple was one of the first trades Rogoff completed at Polar Capital back in 2003 for which he credits for him being where he is today. Since that trade, the share price has climbed nearly 18,000%, expanded significantly and becoming a ‘growth stock’. More recently, Apple has become underweighted in Polar Capital’s fund having been overweighted for many years. This is the result of Rogoff’s opinion that the smartphone industry just is not what it used to be.

However, the same cannot be said for Amazon. The launch of Amazon Web Services (AWS) has seen Amazon expand from being just an eCommerce platform to a cloud computing platform which is far more valuable. Rogoff used to think Amazon’s share price was too expensive but now believes it wasn’t and could see AWS make $100bn in revenue in the future.

William de Gale, portfolio manager of the Global Technology fund at BlueBox Wealth Management, also spoke at the Big Call. He said FAANGs holds all sorts of problem and were very unlikely to repeat the returns of the last 10 years in the next decade.

Despite Rogoff’s optimism towards Amazon, Apple still holds a larger weighting in Polar Capital’s fund. Similarly, the SPDR S&P 500 ETF (SPY) offers a greater weighting to Apple (3.6%) than Amazon (3.2%). Apple is second only to Microsoft (4.2%) which was described to be one of the biggest comebacks in technology at the Big Call.

Microsoft saw its share price haemorrhage back in 2000 where it was overtaken by all its competitors. Still not included in the FAANGs acronym, the software company has seen its valuation balloon to over $1tn at one point as its share price has risen 184.2% since January 2015.

The general outlook for the technology sector, and more specifically FAANGs, remain positive but not necessarily to the same extent as previous performances. The sector is likely to accelerate further, especially amid a US trade war with China, making it hard to see a downfall happening any time soon.

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