The famous FAANG quintet of Facebook Inc. (NASDAQ: FB), Amazon.com Inc. (NASDAQ: AMZN), Apple Inc. (NASDAQ: AAPL), Netflix, Inc. (NASDAQ: NFLX) and Google parent Alphabet Inc. (NASDAQ: GOOGL) account for an increasing percentage of the Nasdaq Composite and that dominance is worrying some market observers.
“While many parts of the market have experienced a rise in price volatility in recent months, it has largely been a one-way street for the tech darlings of Wall Street: Apple, Facebook, Amazon, Netflix and Google, also known as FANG + Apple, have grown their collective market value by more than 40% in the past year to $3 trillion, and now accounts for a staggering 25% of the Nasdaq Composite,” reports ZeroHedge.
As for the PowerShares QQQ (NasdaqGM: QQQ), which tracks the tech-heavy Nasdaq-100 Index, that ETF also features significant FAANG exposure. The ETF allocates 61.22% of its weight to the technology sector. In order, Apple, Amazon, Facebook, Alphabet and Netflix combine for over 37% of QQQ’s weight.
There are advantages and drawbacks to an ETF featuring such large exposure to a small amount of stocks.
ETF Advantages and Drawbacks
Amazon, Facebook and Google are widely held by hedge funds, but if those fund managers decide to depart those names in significant fashion, ETFs would be punished in the process. On the other hand, fundamentals have been supporting upside in these large- and mega-cap technology stocks.