S&P500 ex-FAANGs

Discuss all general (i.e. non-personal) investing questions and issues, investing news, and theory.
Post Reply
User avatar
Lauretta
Posts: 218
Joined: Wed Jul 05, 2017 6:27 am
Location: Italy

S&P500 ex-FAANGs

Post by Lauretta » Tue Sep 12, 2017 5:21 am

I've had this (possibly crazy) idea after reading a memo by Howard Marks and some other paper showing that the P/E ratio of the US is actually not that different from that of Europe once you take the FAANGs out...Has anyone thought of investing in US stocks but avoiding FAANGs? How would you achieve this in practice? Buy sector ETFs? Probably not doable for a EU investor like me, but I thought I'd float the idea anyway :-)
When everyone is thinking the same, no one is thinking at all

MotoTrojan
Posts: 777
Joined: Wed Feb 01, 2017 8:39 pm

Re: S&P500 ex-FAANGs

Post by MotoTrojan » Tue Sep 12, 2017 7:05 am

S&P500 and short FAANG. Seems like a quick way to go broke though.

columbia
Posts: 504
Joined: Tue Aug 27, 2013 5:30 am

Re: S&P500 ex-FAANGs

Post by columbia » Tue Sep 12, 2017 7:19 am

I guess one could do the reverse and "pick" the 4-5 stocks which will bloom the most for the next 30 years. I'm not willing to risk my savings on doing that and being wrong.

User avatar
Lauretta
Posts: 218
Joined: Wed Jul 05, 2017 6:27 am
Location: Italy

Re: S&P500 ex-FAANGs

Post by Lauretta » Tue Sep 12, 2017 7:23 am

MotoTrojan wrote:
Tue Sep 12, 2017 7:05 am
S&P500 and short FAANG. Seems like a quick way to go broke though.
:D :D Good point on how to do it, though not possible to short US stocks for me with my broker in EU. So it might save me from going broke if you're right :wink: :D
When everyone is thinking the same, no one is thinking at all

User avatar
Lauretta
Posts: 218
Joined: Wed Jul 05, 2017 6:27 am
Location: Italy

Re: S&P500 ex-FAANGs

Post by Lauretta » Tue Sep 12, 2017 7:30 am

columbia wrote:
Tue Sep 12, 2017 7:19 am
I guess one could do the reverse and "pick" the 4-5 stocks which will bloom the most for the next 30 years. I'm not willing to risk my savings on doing that and being wrong.
my understanding is that picking the few stocks that really outperform is extremely hard. On the other hand, based on historical evidence it seems reasonably safe to conclude that the highly overpriced stocks into which huge expectations are baked in (like the radio, airplane or automobile stocks in the past) often end up doing disastrously...
When everyone is thinking the same, no one is thinking at all

columbia
Posts: 504
Joined: Tue Aug 27, 2013 5:30 am

Re: S&P500 ex-FAANGs

Post by columbia » Tue Sep 12, 2017 7:36 am

Yes.

Believing that one can predict future systemic changes in economics and technology seems like quite a bit of hubris.

User avatar
Lauretta
Posts: 218
Joined: Wed Jul 05, 2017 6:27 am
Location: Italy

Re: S&P500 ex-FAANGs

Post by Lauretta » Tue Sep 12, 2017 7:40 am

columbia wrote:
Tue Sep 12, 2017 7:36 am
Yes.

Believing that one can predict future systemic changes in economics and technology seems like quite a bit of hubris.
yes, on the subject of how technology changes the world this is quite interesting I think
http://awealthofcommonsense.com/2017/09 ... nnovation/
When everyone is thinking the same, no one is thinking at all

Alchemist
Posts: 225
Joined: Sat Aug 30, 2014 6:35 am
Location: Florida

Re: S&P500 ex-FAANGs

Post by Alchemist » Tue Sep 12, 2017 8:01 am

This would seem to be a counter-historical way to invest to me. What I mean is that it is completely normal, IIRC, for a few companies in the S&P 500 index to account for almost all the gains. Which companies those happen to be, of course, changes through the years. Now its FANG, used to be something else, maybe it will be another group the next 10 years. Maybe FANG has another 10 years of huge run up to go.

I don't know. I doubt anyone does. Own the haystack

User avatar
Lauretta
Posts: 218
Joined: Wed Jul 05, 2017 6:27 am
Location: Italy

Re: S&P500 ex-FAANGs

Post by Lauretta » Tue Sep 12, 2017 8:08 am

Alchemist wrote:
Tue Sep 12, 2017 8:01 am
This would seem to be a counter-historical way to invest to me. gaWhat I mean is that it is completely normal, IIRC, for a few companies in the S&P 500 index to account for almost all the ins.
Completely agree with your first point; however, considering the valuations of some of these companies, I'm concerned about mean reversion, which history also teaches
When everyone is thinking the same, no one is thinking at all

User avatar
Pajamas
Posts: 2780
Joined: Sun Jun 03, 2012 6:32 pm

Re: S&P500 ex-FAANGs

Post by Pajamas » Tue Sep 12, 2017 8:14 am

Wouldn't you want to own rather than avoid the stocks responsible for the out-performance?

Alchemist
Posts: 225
Joined: Sat Aug 30, 2014 6:35 am
Location: Florida

Re: S&P500 ex-FAANGs

Post by Alchemist » Tue Sep 12, 2017 8:14 am

Lauretta wrote:
Tue Sep 12, 2017 8:08 am
Completely agree with your first point; however, considering the valuations of some of these companies, I'm concerned about mean reversion, which history also teaches
That is certainly a good point, but there are two ways for valuations to mean revert. One is of course what everyone fears, the price coming down. The other is increased earnings. Both can happen, and I do not know which will happen for FANG. Probably some combination of both if I had to guess, but again my crystal ball is cloudy.

retiredjg
Posts: 30549
Joined: Thu Jan 10, 2008 12:56 pm

Re: S&P500 ex-FAANGs

Post by retiredjg » Tue Sep 12, 2017 8:18 am

From Investopedia....

DEFINITION of 'FAANG Stocks'
FAANG is an acronym for the five most popular and best performing tech stocks in the market, namely Facebook, Apple, Amazon, Netflix, and Alphabet’s Google.


I'll stick with the total market myself.

User avatar
Lauretta
Posts: 218
Joined: Wed Jul 05, 2017 6:27 am
Location: Italy

Re: S&P500 ex-FAANGs

Post by Lauretta » Tue Sep 12, 2017 8:23 am

Pajamas wrote:
Tue Sep 12, 2017 8:14 am
Wouldn't you want to own rather than avoid the stocks responsible for the out-performance?
well they have been responsible for past outperformance - my fear is that they might be responsible for underperformance in future because of mean reversion if they've traded on momentum as some people think. However as Alchemist has noted their earning might increase sufficiently to accountfor valuations. Who knows? In the end maybe it's a question of temperament. Owning a very expensive stock (even if it's a wonderful company) makes me feel very nervous, much more so than owning a cheap but unglamorous company.
When everyone is thinking the same, no one is thinking at all

snarlyjack
Posts: 467
Joined: Fri Aug 28, 2015 12:44 pm
Location: Montana

Re: S&P500 ex-FAANGs

Post by snarlyjack » Tue Sep 12, 2017 8:25 am

Lauretta,

Nice meeting you.

I would suggest that you compare the stocks
in the High Dividend Yield Index Fund to the
stocks in the S & P 500 Fund. It's kind of interesting.

User avatar
Lauretta
Posts: 218
Joined: Wed Jul 05, 2017 6:27 am
Location: Italy

Re: S&P500 ex-FAANGs

Post by Lauretta » Tue Sep 12, 2017 8:36 am

snarlyjack wrote:
Tue Sep 12, 2017 8:25 am
Lauretta,

Nice meeting you.

I would suggest that you compare the stocks
in the High Dividend Yield Index Fund to the
stocks in the S & P 500 Fund. It's kind of interesting.
Thanks snarlyjack! I have found VHDYX, I guess that's what you mean, it looks interesting, more like what I am confortable with (value! :wink: :D ) Will look at this in detail, thanks again.
When everyone is thinking the same, no one is thinking at all

User avatar
CyclingDuo
Posts: 839
Joined: Fri Jan 06, 2017 9:07 am

Re: S&P500 ex-FAANGs

Post by CyclingDuo » Tue Sep 12, 2017 8:37 am

Lauretta wrote:
Tue Sep 12, 2017 8:08 am
Alchemist wrote:
Tue Sep 12, 2017 8:01 am
This would seem to be a counter-historical way to invest to me. gaWhat I mean is that it is completely normal, IIRC, for a few companies in the S&P 500 index to account for almost all the ins.
Completely agree with your first point; however, considering the valuations of some of these companies, I'm concerned about mean reversion, which history also teaches
Since you listed FAANG in your OP, you would have to remove one of the "A"'s as Apple's valuation is not in the same realm as the F, other A, N, and G.

You could buy shares in the other 495 or 496 S&P stocks to get your index minus the FANG (or your FAANG). :mrgreen:

User avatar
Lauretta
Posts: 218
Joined: Wed Jul 05, 2017 6:27 am
Location: Italy

Re: S&P500 ex-FAANGs

Post by Lauretta » Tue Sep 12, 2017 8:46 am

CyclingDuo wrote:
Tue Sep 12, 2017 8:37 am
Lauretta wrote:
Tue Sep 12, 2017 8:08 am
Alchemist wrote:
Tue Sep 12, 2017 8:01 am
This would seem to be a counter-historical way to invest to me. gaWhat I mean is that it is completely normal, IIRC, for a few companies in the S&P 500 index to account for almost all the ins.
Completely agree with your first point; however, considering the valuations of some of these companies, I'm concerned about mean reversion, which history also teaches
Since you listed FAANG in your OP, you would have to remove one of the "A"'s as Apple's valuation is not in the same realm as the F, other A, N, and G.

You could buy shares in the other 495 or 496 S&P stocks to get your index minus the FANG (or your FAANG). :mrgreen:
yes you're right about Apple's valuations, though the Howard Marks paper I referred to argued it's overly expensive too. Good idea about buying the other 495 stocks; I'll see if I find the time to do that :wink:
When everyone is thinking the same, no one is thinking at all

User avatar
TheTimeLord
Posts: 4639
Joined: Fri Jul 26, 2013 2:05 pm

Re: S&P500 ex-FAANGs

Post by TheTimeLord » Tue Sep 12, 2017 8:52 am

Lauretta wrote:
Tue Sep 12, 2017 5:21 am
I've had this (possibly crazy) idea after reading a memo by Howard Marks and some other paper showing that the P/E ratio of the US is actually not that different from that of Europe once you take the FAANGs out...Has anyone thought of investing in US stocks but avoiding FAANGs? How would you achieve this in practice? Buy sector ETFs? Probably not doable for a EU investor like me, but I thought I'd float the idea anyway :-)
Eh no, I don't understand why I would want to eliminate high growth companies with huge cash hoardes and dynamic businesses in favor of holding a greater percentage of Exxon/Mobil and IBM. I basically went the other way and bought a small amount of Vanguard Information Technology ETF (VGT) a while back. Having a low PE in and of itself does not mean the stock or the market is cheap, you have to understand why it's PE is low.
Run, You Clever Boy!

User avatar
Lauretta
Posts: 218
Joined: Wed Jul 05, 2017 6:27 am
Location: Italy

Re: S&P500 ex-FAANGs

Post by Lauretta » Tue Sep 12, 2017 9:02 am

TheTimeLord wrote:
Tue Sep 12, 2017 8:52 am
Lauretta wrote:
Tue Sep 12, 2017 5:21 am
I've had this (possibly crazy) idea after reading a memo by Howard Marks and some other paper showing that the P/E ratio of the US is actually not that different from that of Europe once you take the FAANGs out...Has anyone thought of investing in US stocks but avoiding FAANGs? How would you achieve this in practice? Buy sector ETFs? Probably not doable for a EU investor like me, but I thought I'd float the idea anyway :-)
Eh no, I don't understand why I would want to eliminate high growth companies with huge cash hoardes and dynamic businesses in favor of holding a greater percentage of Exxon/Mobil and IBM. I basically went the other way and bought a small amount of Vanguard Information Technology ETF (VGT) a while back. Having a low PE in and of itself does not mean the stock or the market is cheap, you have to understand why it's PE is low.
Interesting. May I ask if you are planning to hold VGT for the long term or is it for trading?
When everyone is thinking the same, no one is thinking at all

User avatar
Lauretta
Posts: 218
Joined: Wed Jul 05, 2017 6:27 am
Location: Italy

Re: S&P500 ex-FAANGs

Post by Lauretta » Tue Sep 12, 2017 9:06 am

TheTimeLord wrote:
Tue Sep 12, 2017 8:52 am
you have to understand why it's PE is low.
yes of course, though if its PE (or other value indicators) is low statistically it has more chance to outperform according to e.g. the French Fama work, and vice-versa
When everyone is thinking the same, no one is thinking at all

User avatar
TheTimeLord
Posts: 4639
Joined: Fri Jul 26, 2013 2:05 pm

Re: S&P500 ex-FAANGs

Post by TheTimeLord » Tue Sep 12, 2017 9:20 am

Lauretta wrote:
Tue Sep 12, 2017 9:02 am
TheTimeLord wrote:
Tue Sep 12, 2017 8:52 am
Lauretta wrote:
Tue Sep 12, 2017 5:21 am
I've had this (possibly crazy) idea after reading a memo by Howard Marks and some other paper showing that the P/E ratio of the US is actually not that different from that of Europe once you take the FAANGs out...Has anyone thought of investing in US stocks but avoiding FAANGs? How would you achieve this in practice? Buy sector ETFs? Probably not doable for a EU investor like me, but I thought I'd float the idea anyway :-)
Eh no, I don't understand why I would want to eliminate high growth companies with huge cash hoardes and dynamic businesses in favor of holding a greater percentage of Exxon/Mobil and IBM. I basically went the other way and bought a small amount of Vanguard Information Technology ETF (VGT) a while back. Having a low PE in and of itself does not mean the stock or the market is cheap, you have to understand why it's PE is low.
Interesting. May I ask if you are planning to hold VGT for the long term or is it for trading?
Long Term (as in no plans to sell), but this is a very small position (under 2% currently). Basically I am augmenting my Total Market holdings with small positions in Sector ETFs for sectors I believe will inevitably outperform over the long term (I guess you could do the same for sector you felt were undervalued). That said I am not doing it to an extent that would endanger my portfolio overall so even if I am right it probably won't make a huge difference in performance.
Run, You Clever Boy!

lack_ey
Posts: 5692
Joined: Wed Nov 19, 2014 11:55 pm

Re: S&P500 ex-FAANGs

Post by lack_ey » Tue Sep 12, 2017 12:08 pm

FWIW it's not exact and the expense ratio makes this unattractive, but for US investors there is a ProShares S&P 500 Ex-Technology ETF (SPXT). You could of course own each of the other sectors individually in individual sector ETFs, which are larger/cheaper/traded more, then maybe add in some other specialized funds or a few stocks as proxy for non-FAANG technology.

rkhusky
Posts: 4397
Joined: Thu Aug 18, 2011 8:09 pm

Re: S&P500 ex-FAANGs

Post by rkhusky » Tue Sep 12, 2017 12:27 pm

Lauretta wrote:
Tue Sep 12, 2017 9:06 am
TheTimeLord wrote:
Tue Sep 12, 2017 8:52 am
you have to understand why it's PE is low.
yes of course, though if its PE (or other value indicators) is low statistically it has more chance to outperform according to e.g. the French Fama work, and vice-versa
Actually, the Fama-French work wasn't about trying to predict future returns, it was about finding factors that "explained" past returns.

User avatar
Lauretta
Posts: 218
Joined: Wed Jul 05, 2017 6:27 am
Location: Italy

Re: S&P500 ex-FAANGs

Post by Lauretta » Tue Sep 12, 2017 1:20 pm

rkhusky wrote:
Tue Sep 12, 2017 12:27 pm
Lauretta wrote:
Tue Sep 12, 2017 9:06 am
TheTimeLord wrote:
Tue Sep 12, 2017 8:52 am
you have to understand why it's PE is low.
yes of course, though if its PE (or other value indicators) is low statistically it has more chance to outperform according to e.g. the French Fama work, and vice-versa
Actually, the Fama-French work wasn't about trying to predict future returns, it was about finding factors that "explained" past returns.
So in your opinion Fama's academic work is unrelated to the fact that he cofounded DFA?... Besides it seems to me that if their explainations (I don't know why you put quote marks) don't have any predictive power, they are not explanations at all as they would be indistinguisheable from data mining. At least that's how it works in my subject (physics) - when I write an academic paper to explain a phenomenon, the explainations must have predictive power and the work even if carried out in Academia is more often than not with an application in view...
Last edited by Lauretta on Tue Sep 12, 2017 1:31 pm, edited 1 time in total.
When everyone is thinking the same, no one is thinking at all

User avatar
Lauretta
Posts: 218
Joined: Wed Jul 05, 2017 6:27 am
Location: Italy

Re: S&P500 ex-FAANGs

Post by Lauretta » Tue Sep 12, 2017 1:29 pm

lack_ey wrote:
Tue Sep 12, 2017 12:08 pm
FWIW it's not exact and the expense ratio makes this unattractive, but for US investors there is a ProShares S&P 500 Ex-Technology ETF (SPXT). You could of course own each of the other sectors individually in individual sector ETFs, which are larger/cheaper/traded more, then maybe add in some other specialized funds or a few stocks as proxy for non-FAANG technology.
Thanks, interesting point, I'll look into these ETFs :-) Btw I just came across this article which gives some good counter-arguments to some of the things I said above, and warns against preferring stocks or sectors just because they are cheap...
https://www.bloomberg.com/view/articles ... e-strategy
Who knows what will happen in the end? :?: :?: :?:
When everyone is thinking the same, no one is thinking at all

rkhusky
Posts: 4397
Joined: Thu Aug 18, 2011 8:09 pm

Re: S&P500 ex-FAANGs

Post by rkhusky » Tue Sep 12, 2017 1:34 pm

Lauretta wrote:
Tue Sep 12, 2017 1:20 pm
rkhusky wrote:
Tue Sep 12, 2017 12:27 pm
Lauretta wrote:
Tue Sep 12, 2017 9:06 am
TheTimeLord wrote:
Tue Sep 12, 2017 8:52 am
you have to understand why it's PE is low.
yes of course, though if its PE (or other value indicators) is low statistically it has more chance to outperform according to e.g. the French Fama work, and vice-versa
Actually, the Fama-French work wasn't about trying to predict future returns, it was about finding factors that "explained" past returns.
So in your opinion Fama's academic work is unrelated to the fact that he cofounded DFA?... Besides it seems to me that if their explainations (I don't know why you put quote marks) don't have any predictive power, they are not explanations at all as they would be indistinguisheable from data mining. At least that's how it works in my subject (physics) - when I write an academic paper to explain a phenomen it is more often than not with an application in view...
"Explain" can be either a correlation-type explanation or a causation-type explanation. Fama-French's explanation was of the first type and was definitely data mining. And it is clear that past results are not guaranteed in the future, in fact many people are discussing if the small and/or value premiums have disappeared.

MotoTrojan
Posts: 777
Joined: Wed Feb 01, 2017 8:39 pm

Re: S&P500 ex-FAANGs

Post by MotoTrojan » Tue Sep 12, 2017 6:27 pm

Could also do an equal-weighted S&P 500 index to reduce exposure to the high-flyers.

Post Reply