FANG Index – strong growth but more to come?
Tech stocks have stormed ahead since 2009, and with the current economic outlook and strong financial performance the gains may well continue.
Can tech stocks keep up the momentum?
Fresh all-time highs for the Nasdaq 100 confirm that there is still plenty of strength left in the rally, and with Warren Buffett announcing that he is finally investing in Amazon, the outlook seems propitious for more gains.
The Nasdaq 100 is already up 20% for the year, and new all-time highs have helped to rebut the idea that the late 2018 sell-off was about to turn into a new bear market. Yes, the rally has been going on for ten years, but the outlook seems to suggest that money will keep flowing into tech stocks.
After all, despite the volatility of the past twelve months, it seems that the post-2009 rally in stocks, which has from 2013 turned into a secular bull market, has further to go. Looking at the current economic backdrop, it is easy to understand why tech stocks remain attractive, even after an 800% gain for the Nasdaq since the 2009 low.
Interest rates around the globe remain near record lows. Despite a shift to a tightening program (now halted) by the Federal Reserve (Fed), the overall position on interest rates is still low by historic standards. Bond yields remain low (with German 10 year rates falling back into negative territory just this week), pushing investors towards equities that offer both income and capital return.
Tech stocks offer a welcome haven from economic fears
The economic outlook is difficult too. While the US economy is still doing well, the eurozone continues to stumble. Trade wars also provide another worry, especially for the economies of east Asia. Brexit of course is also a factor, and global tech stocks such as Facebook, Google and Amazon provide a welcome haven from any concerns about what kind of relationship will exist between the UK and EU should the former ever get around to leaving the latter.
Tech stocks are often criticised for being expensive, with high price to earning ratios (P/E ratios) that might suggest investors should look elsewhere. However, these P/E ratios have been high for a long time, and are more representative of the high demand for the stocks, and the large growth rates still on offer for global companies looking to expand their operations outside of the US.
The IG Fang index looks to replicate an index of ten major tech stocks, such as Amazon, Google, Facebook and NVIDIA. These have been major winners over the past ten years, but show little sign of slowing down. While a more concentrated index than the Nasdaq 100 or the Nasdaq composite, it contains those firms likely to shape the global tech market for years to come.
This is not 2001 – these companies have, in most cases, well proven revenue streams, and strong businesses that have seen excellent growth over the past ten years. The internet and tech stocks have come of age, and will continue to be a major driver of market returns in the years to come.
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