"What Are FAANG Stocks?"

"What Are FAANG Stocks?"

FAANG is an acronym for the market's five most popular and best-performing tech stocks, namely Facebook, Apple, Amazon, Netflix and Alphabet’s Google. FAANG was born out of the original acronym, FANG, which did not have Apple included when CNBC’s Jim Cramer coined the term.

What are FAANG Stocks?

Facebook (FB), Amazon (AMZN), Apple (AAPL), Netflix (NFLX), and Alphabet (GOOG) are the five technology giants trading publicly in the market today, as of 2019. Investors grouped these companies into one acronym to capture the collective impact that these companies have on the markets. As of March 20, 2018, the market capitalization of these companies summed up to $472.38 billion + $760.36 billion + $888.66 billion + $136.92 billion + $757.54 billion = $3.015 trillion. By the end of 2018, all the FAANG stocks fell into a bear market, losing more than 20% or more of their market value.

In addition to the sizable worth of these five tech companies, their growth spurts have also seen the majority of the prominent money managers in the United States increase their stake in FAANG stocks for their funds. Funds like Berkshire Hathaway, Soros Fund Management, Renaissance Technologies, and many others added FAANGs to their portfolios as growth and momentum stocks, as revealed through the SEC mandatory 13-F filing in the first quarter of 2017. The growth of these companies can also be seen through their earnings, which have consistently increased year-over-year, making them among the most highly valued in the world from a price to earnings perspective.

Why are they such a big deal?

Each company has been known to move markets and transform not just their own industries, but also how we all live.

Consider Amazon. AMZN, -0.91% (It was the original “A” when Jim Cramer first coined the term to quickly refer to the group of fast-growing tech stocks; Apple was added later.)

The online megastore has made shopping fast, easy and accessible, crushing its competition and completely changing the way retail operates. Many consumers now expect to be able to purchase anything and everything—from clothes, groceries and gadgets to a personalized “Game of Thrones” music box—anytime, with one click and free shipping.

Amazon’s investors may have equally high expectations. Five years ago, the company’s share price was around $300; it ended the first week of July above $1,700 a share. And with a current market capitalization of about $830 billion, it’s the third-heaviest component of S&P 500 index, behind Apple AAPL, -0.22% and Microsoft. MSFT, +1.23%

Even the smallest FAANG member, Netflix, NFLX, -0.61% is a heavy hitter. Its market cap is about $177 billion, weighing in at 0.75% of the S&P 500. And over the past five years, its shares have skyrocketed from less than $40 in July 2013 to more than $400 last week.

Together, the five companies make up approximately 13% of the index with a collective market cap of nearly $3.8 trillion. So if FAANG was a country, and its market cap was its gross domestic product, that’s big enough to make it the fourth-largest economy in the world.

So, should I buy them?

Well, the group’s history of success certainly warrants consideration, but whether each company can maintain the heady growth is debatable. Then there’s the issue of price: To buy just one share of each FAANG stock, you’d need more than $3,600 total (as of July 9). And keep in mind that five U.S. large tech stocks doesn’t exactly make for a diversified portfolio.

Luckily, there’s an easier, much cheaper way to buy into FAANG stocks while protecting yourself from any potential slowdown. In fact, it’s so easy that you’re probably already doing it.

Plenty of mutual funds and exchange-traded funds (ETFs)—including index funds that track the S&P 500, of course—count FAANGs among their holdings. So if you own any stock funds, you can check your fund’s prospectus to see how much you have in FAANGs already.

You’ll also notice that these types of funds also give you a stake in hundreds of other companies at the same time. That means you get exposure to the world’s most popular stocks while maintaining a diversified portfolio in one fell swoop—a smart and easy investing strategy to build and preserve your wealth over the long term.