Investors expecting FAANG1 stocks to continue the extraordinary performance of recent years have undoubtedly been disappointed by their returns in 2022 (see Exhibit 1). All five of the stocks lagged the broad US market through May 31, with Facebook (now known as Meta) and Netflix suffering particularly sharp losses. The group collectively underperformed the Russell 3000 Index2 by nearly eleven percentage points.3
To be fair, Apple and Google have held up quite well, relatively speaking. So, not all stocks in the FAANG are getting crushed.
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 reversal of fortune is simply a reminder that outperformance of that magnitude won’t continue forever. No company or sector is immune to risk or severe pullbacks. 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.
1Facebook-parent Meta; Amazon; Apple; Netflix; and Google-parent Alphabet.
2Frank 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.
3FAANG 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.
Source: Dimensional Fund Advisors