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.
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%.
If any company has a full market capitalization (FMC) weight greater than 24%, the company’s weight is capped at 23%;
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.
Violeta è entrata a far parte di Leverage Shares nel settembre 2022. È responsabile dello svolgimento di analisi tecniche e ricerche macroeconomiche ed azionarie, fornendo pregiate informazioni per aiutare a definire le strategie di investimento per i clienti.
Prima di cominciare con LS, Violeta ha lavorato presso diverse società di investimento di alto profilo in Australia, come Tollhurst e Morgans Financial, dove ha trascorso gli ultimi 12 anni della sua carriera.
Violeta è un tecnico di mercato certificato dall’Australian Technical Analysts Association e ha conseguito un diploma post-laurea in finanza applicata e investimenti presso Kaplan Professional (FINSIA), Australia, dove è stata docente per diversi anni.
Julian è entrato a far parte di Leverage Shares nel 2018 come parte della prima espansione della società in Europa orientale. È responsabile della progettazione di strategie di marketing e della promozione della notorietà del marchio.
Oktay è entrato a far parte di Leverage Shares alla fine del 2019. È responsabile della crescita aziendale, mantenendo relazioni chiave e sviluppando attività di vendita nei mercati di lingua inglese.
È entrato in LS da UniCredit, dove è stato responsabile delle relazioni aziendali per le multinazionali. La sua precedente esperienza è in finanza aziendale e amministrazione di fondi in società come IBM Bulgaria e DeGiro / FundShare.
Oktay ha conseguito una laurea in Finanza e contabilità ed un certificato post-laurea in Imprenditoria presso il Babson College. Ha ottenuto anche la certificazione CFA.