FAANG Trading Strategies (Backtest And Performance)

What Is FAANG and What Does It Stand For?

FAANG is an acronym that represents five of the most prominent and influential technology companies in the world.

Each letter in FAANG stands for one of these companies:

  1. Facebook (now Meta Platforms, Inc.): A social media giant known for its flagship platform, Facebook, as well as other platforms like Instagram and WhatsApp.
  2. Apple Inc.: A multinational technology company famous for its iPhones, iPads, Mac computers, and other consumer electronics.
  3. Amazon.com Inc.: The world’s largest online retailer, offering a wide range of products and services, including e-commerce, cloud computing, and digital streaming.
  4. Netflix Inc.: A leading subscription-based streaming service known for its extensive library of movies and TV shows.
  5. Google (now Alphabet Inc.): A multinational conglomerate that owns Google, the world’s most popular search engine, as well as other ventures like YouTube and Waymo (self-driving cars).

The FAANG companies are significant in the world of finance and technology for several reasons:

  1. Market Capitalization: These companies have some of the largest market capitalizations in the world, collectively accounting for a substantial portion of the stock market’s total value. As of writing, they account for about 25% of the market cap in S&P 500!
  2. Innovation: They are at the forefront of technological innovation, continuously introducing new products, services, and technologies that shape industries and consumer behavior. They have what Warren Buffett would call an enormous “moat”.
  3. Disruption: FAANG companies have disrupted traditional industries, such as retail (Amazon), media and entertainment (Netflix), and advertising (Google), leading to significant changes in these sectors. However, we know that technology changes, so we might expect these companies to be disrupted themselves sometime in the future. 
  4. Investment Appeal: Investors often view FAANG stocks as attractive investment options due to their history of strong growth and profitability.
  5. Global Reach: These companies have a global presence, serving billions of users and customers worldwide, making them influential players in the global economy.

Before you continue reading, we remind you that we have 100s of profitable and backtested trading strategies. Some are behind a paywall, but if you become a member you get access for as low as 1 USD. 

This article is partially written with AI, and partially by us.

FAANG Trading Strategies (Backtest)

FAANG stocks have outperformed the rest of the market over the last decade – since the end of the financial crisis in 2008/09.

Let’s look at an equal weight vs market weight trading strategy.

We buy SPY and RSP in January 2010. SPY is the ticker code for the oldest ETF still trading, and tracks S&P 500. S&P 500 is a market-weighted index.

RSP is the ticker code for Invesco’s ETF that tracks the equal-weighted version of S&P 500. This means that the holdings are the same, but their weightings are very different. 

Let’s look at the performance from 2010 until today:

FAANG Trading Strategies
FAANG Trading Strategies

The black line is RSP and the blue line is SPY. Clearly, SPY has outperformed RSP substantially. 

The reason for the outperformance is the FAANG stocks. That said, this FAANG trading strategy is partially based on survivorship bias. We know they have outperformed. If they continue to do so so remains to be seen. 

However, if you look at the long-term history, you’ll see that the equal-weighted version has outperformed market-weighted. 

Who Are The FAANG Companies? Core Business Activities

The FAANG companies are a group of five prominent technology giants in the United States.

Here’s a brief description of each company and their core business activities:

  1. Facebook (now Meta Platforms, Inc.):
    • Core Business: Meta Platforms, Inc., formerly known as Facebook, is primarily focused on social media and online social networking. They operate the world’s largest social networking platform, connecting billions of people globally.
  2. Apple Inc.:
    • Core Business: Apple is known for its hardware and software products, including the iPhone, iPad, Mac computers, and iOS operating systems. They also offer digital services like the App Store, iCloud, and Apple Music.
  3. Amazon.com, Inc.:
    • Core Business: Amazon is the world’s largest online retailer, offering a vast range of products and services, including e-commerce, cloud computing (Amazon Web Services or AWS), streaming (Amazon Prime Video), and digital assistants (Alexa).
  4. Netflix, Inc.:
    • Core Business: Netflix is a subscription-based streaming service that provides a vast library of movies, TV shows, and original content. They are a leader in the entertainment industry’s transition to digital streaming.
  5. Google (Alphabet Inc.):
    • Core Business: Google, under its parent company Alphabet Inc., is a technology conglomerate with a diverse portfolio. Google’s core activities include internet search, online advertising (AdWords), and services such as YouTube, Android, and Google Cloud. Alphabet also invests in other technology ventures and research through its various subsidiaries.

Why Are FAANG Companies Important?

FAANG companies, which include Facebook (now Meta), Apple, Amazon, Netflix, and Google (now Alphabet), hold significant importance in today’s world. Their collective impact spans across various dimensions:

These companies wield immense economic power, influencing markets and the global economy. Their market capitalization and financial strength are unmatched.

FAANG firms are at the forefront of technological innovation, consistently pushing the boundaries of what is possible in areas like software, hardware, and artificial intelligence.

They play a crucial role in job creation, directly employing millions of people while also contributing to employment indirectly through their ecosystem.

Their products and services have become deeply ingrained in our daily lives, shaping how we communicate, shop, consume content, and access information.

The vast amount of user data they collect has implications for privacy and the digital economy, prompting discussions around regulation and policy.

Market dominance in their respective sectors raises questions about competition, antitrust regulations, and the concentration of power.

Their stock performance and market influence make them attractive to investors, impacting overall market sentiment.

FAANG companies have a global reach, affecting not just the United States but also markets and societies worldwide.

They exert cultural influence, shaping popular culture and trends, both through their products and their influence on the tech and entertainment industries.

Their strategies and decisions set trends for the tech industry, shaping the trajectory of technology and business in the years to come.

They have tremendous market power, and have partial “monopoly” in certain business areas. 

FAANG Stock Performance and Investment Potential

Here’s an analysis based on the data available:

1. Historical Stock Performance:

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