Hedgeye - CHART OF THE DAY: The Perils of FAANG Stock Outperformance

Editor's Note: Below is a brief excerpt from today's Early Look written by Macro analyst Ben Ryan. Click here to learn more about the Early Look.

Beta coefficients (6mth beta vs. SPX) in the FAANG names have opened up to 1.1-1.8 making the wrong individual security picks a much larger trending portfolio risk.
To expand on our “beta” comment above with some time series context, we have created capitalization-weighted indices of 1, 2 and 3-Mth trending volatility in FAANG. To use an example, 2-Mth realized volatility in the FAANG names as a ratio of 2-Mth S&P 500 Index volatility has steadily expanded from 1.5 to start the year to 3.5 currently. That is visual #1 (left-side) in our Chart of the Day.
Multiple views of “dispersion” show how costly it has been in 2018 to pick the wrong securities in the Mega-Cap “growth” space. We show a rolling chart of 2-Mth performance between the best-performing and worst-performing FAANG stocks. Again, it exemplifies the cost of being overweight the wrong FAANG stock in the wrong period of time. That is visual #2 (right-side) in our Chart of the Day.