The NYSE FANG+ Index, which assesses the performance of a collection of 10 highly traded technology companies, such as Facebook, Apple, and Alibaba, has grown 65% in 2020. What is more impressive however is that over 50% of that growth has come in the past six months.
Back in 2011 August 2013, Marc Andreesen, a software entrepreneur and venture capitalist, wrote a now-famous essay titled “Why Software Is Eating The World.”
Andreesen explained, “More and more major businesses are being run on software and delivered as online services—from movies to agriculture to national defense. Many of the winners are Silicon Valley-style entrepreneurial technology companies that are invading and overturning established industry structures. Over the next 10 years, I expect many more industries to be disrupted by software.”
With the coronavirus changing the way we do business, driving an increasing number of employees to work from home, investors appear ready to pay whatever valuation is out there to purchase companies that are catalyzing the future of how we live and work.
“With this unprecedented COVID-19 pandemic causing a near-term consumer/enterprise spending abyss, the FAANG names have been viewed as relative safety blankets in this scary Category 5 storm. These tech behemoths are both defensive and offensive names for investors, as the re-rating for these secular growth stories continues to play out in the market with no signs of slowing down in our opinion,” Wedbush Securities tech analyst Dan Ives says.
Ives thinks the FAANG group isn’t done yet and has at least another 25% of appreciation left in the tank. That’s excluding a former vice president Jo Biden-Harris win, which he sees driving the cohort even further.
“I think the story with technology stocks is one based on fundamentals. These are companies with extremely strong revenue growth and very strong free cash flow as well. This was true before the pandemic. It has shown to be even further amplified by the pandemic with very strong earnings results from a lot of these tech companies in the second quarter. I think a catalyst for another leg higher for tech is honestly all of the cash we still have on the sidelines,” JPMorgan Asset Management global market strategist Gabriela Santos told Yahoo Finance’s The First Trade.
There are some caveats to a continued increase in the value of FAANG such as healing unemployment levels, however. Unemployment will need to improve so that consumers can continue to purchase technology.
“One of the most important factors in this market and for the broadening of the market in order to include those names that have not participated is: You want to see the unemployment landscape heal, and you want to see those initial unemployment claims come down,” Quincy Krosby, chief market strategist at Prudential Financial said. “That’s a major focus for analysts because we’re a consumer-led economy. People need jobs in order to consume.”
Investors looking to use ETFs to play the FAANG sector can consider the ARK Innovation ETF (ARKK), or the Direxion Daily Technology Bull 3X ETF (NYSEArca: TECL).
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