U.S. Tech Stocks: A Closer Look

Written by: Global Thought Leadership | March 29, 2018

Source: Bloomberg, March 28, 2018. Past performance is no guarantee of future results. Indexes are unmanaged, and not available for direct investment. Index returns do not include fees or sales charges. This information is provided for illustrative purposes only and does not reflect the performance of an actual investment.

 

The Bottom Line

  • March has been a difficult month for the technology sector, but a closer look at the sector’s components sheds light on both the causes and potential opportunities that could result.
  • The New York Stock Exchange FANG+ Index tracks the 10 stocks1 most closely associated with the high concentration of tech-related shares in broader market indexes.
  • Since the end of February, the FANG+ Index has fallen over -9.5%, vs. the S&P 500 Info Tech Sector’s -6.7% drop. Peak-to-trough, however, the FANG+ Index fell about -16.5% during the period. The FANG+ Index contains some of the heaviest-weighted stocks in the market-cap-weighted S&P500.
  • But two stocks-- Tesla and Facebook -- account for nearly half (44.5%) of the FANG+ Index’s fall during the period – each due to its own company-specific issues.
  • The bottom line: Before concluding that the recent rout reflects a general reversal of fortune for the broader tech sector, it’s important to look at what’s behind the behavior of the broader indexes.
  • A fundamentals-driven look at individual companies could help determine if price declines represent a sign of underlying issues – or could represent opportunities to take advantage of market mispricing to the advantage of investors – one of the potentially key advantages of active investing over passive, index-based approaches.

 


1 Alibaba, Alphabet, Amazon, Apple, Baidu, Facebook, NVIDIA, Netflix, Tesla, Twitter


Definitions:

The NYSE FANG+ Index is an equal-dollar weighted index designed to represent a segment of the technology and consumer discretionary sectors consisting of highly-traded growth stocks of technology and tech-enabled companies such as Facebook, Apple, Amazon, Netflix, and Alphabet's Google.

The S&P 500 Index is an unmanaged index of 500 stocks that is generally representative of the performance of larger companies in the U.S. Indexes are unmanaged, and not available for direct investment. Index returns do not include fees or sales charges.

The Standard and Poor's 500 Information Technology Index is a capitalization-weighted index, based on the standardized GICS Sector group, one of the 11 Sector groups within the S&P 500 Index.

 

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