CHART OF THE DAY: The Perils of FAANG Stock Outperformance

09/18/18 09:58AM EDT

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.

CHART OF THE DAY: The Perils of FAANG Stock Outperformance - 07.27.2018 FAANG cartoon

  • 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 currentlyThat 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.

CHART OF THE DAY: The Perils of FAANG Stock Outperformance - 09.18.18 EL Chart

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

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