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FAANG+: Both Market-Leading and Volatility-Averse

Your capital is at risk if you invest. You could lose all your investment. Please see the full risk warning here.

Big Tech has never been more relevant than ever before. In the current quarter, investors are largely retreating from the conviction in specific names and investing into broad market ETFs as well as large tech stocks. While investing in the former has the benefit of risk diversification, the latter have benefited from depressed earnings estimates which, upon being beaten, have resulted in flows that boosted their stock valuations at a rate higher than that of the broad market.

However, this is by no means a recent phenomenon.

Historical Trends: Big Tech vs the Market

Let’s consider an equally-weighted basket of ten tech stocks: Meta Platforms (META), Apple (AAPL), Amazon (AMZN), Netflix (NFLX), Microsoft (MSFT), Alphabet, Class A (GOOG), Tesla (TSLA), Nvidia (NVDA), Salesforce.com (CRM), and Advanced Micro Devices (AMD). This ten-ticker basket is broadly described as the “FAANG+” theme. The market can be represented by the S&P 500 (SPX).

Around the start of the fourth quarter of 2021, the net performance of FAANG+ for the year started to overtake that of the broad market.

Websim is the retail division of Intermonte, the primary intermediary of the Italian stock exchange for institutional investors. Leverage Shares often features in its speculative analysis based on macros/fundamentals. However, the information is published in Italian. To provide better information for our non-Italian investors, we bring to you a quick translation of the analysis they present to Italian retail investors. To ensure rapid delivery, text in the charts will not be translated. The views expressed here are of Websim. Leverage Shares in no way endorses these views. If you are unsure about the suitability of an investment, please seek financial advice. View the original at

As the market took on a distinctively bullish outlook shortly after the end of the second quarter, FAANG+ displayed increasingly strong evidence of directional cues being taken from the market albeit with a distinct outperformance.

2022 saw the market close 20% lower than at the start of the year. In the same period, FAANG+ read the same phenomenon to close more than 50% lower than at the start of the year.

In 2023, in the year till the 19th of May, the performance comparison is even more skewed. While the market is up by 9% from the start of the year, the FAANG+ is up by more than 52%.

Now, the entirety of FAANG+ is represented in the S&P 500 as well. This highlights an important fact: these 10 stocks now represent the “top of the line” of the market and occupy a large portion of the market only limited by weightage limits in the index:

  1. If any company has a full market capitalization (FMC) weight greater than 24%, the company’s weight is capped at 23%;

  2. The sum of the companies with weights greater than 4.8% cannot exceed 50% of the total index weight, failing which weights are readjusted starting from the smallest company until this rule holds true.

If unfettered of these rules, the S&P 500’s net performance would be dominated by the likes of these ten companies.

Quarterly Price and Volatility Trends

A tabulation of volatility (as represented by standard deviation) for each quarter and price changes from the start to the end of the quarter from the start of 2021 till the present reveal some very interesting trends:

Overall trends in volatility indicate that the market tends to be around 7-9 times more volatile than the FAANG+. The lowest point is the 6 times level seen this past quarter while the highest is at the 10-20 times level seen from Q2 through Q4 of this past calendar year. In terms of price changes, the rate of price change for the FAANG+ theme has tended to be less extreme and (generally) more bullish than that in the market.

An Opportunity Over the Market?

With further contractions expected in the market as calls for a recession becomes increasingly more strident, it should be evident that trends impute a higher level of survivability for these highly-recognizable technology-driven companies over other companies, be they large-, mid- or small-cap. This can also be the attribution for the continuing price ratio overvaluation of these companies.

As the market twists and turns over the next few prospectively-tumultuous quarters, it can be expected that FAANG+ will continue to receive disproportionate attention. To capitalise on this opportunity, Leverage Shares has launched the FAANG+ ETP that holds these ten stocks in equal weights. With wide access across the Continent and affordable pricing, tactical trading strategies based around the FAANG+ will provide an extra edge for sophisticated investors.

Your capital is at risk if you invest. You could lose all your investment. Please see the full risk warning here.

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