Over recent years, the Stock Market has continued to achieve all time highs with the latest in the last month. Time and again the stock market continues to be the best investment options to accelerate your wealth. In recent years the hottest investment products pushed by the industry have been Exchange Traded Funds (ETFs) which unlike traditional funds charge far less in management and performance fees. However, would it surprise you to know that investing directly in stocks yourself, you would have significantly beaten the top ETFs over the past three years.
Comparing ETFs vs The S&P 500 benchmarks performance since 2015
When comparing ETFs over the past three years to the S&P 500 index, the S&P 500 is up 32.83 per cent to date. IVV one of the S&P 500 ETFs achieve a return of 32.9 per cent.
It is important to note that these funds are designed to track the indexes performance, and it is no surprise the returns are fairly constant. Over the past three years holding one an index ETFs you would seen investors received a double digit returns year over year, which on the surface sounds great. But what if you could have received triple digit returns?
Investing directly to achieve higher returns
What continues to surprise me is just how quickly people continue to hand over their money to fund managers in hopes of higher returns when they could have received much higher returns themselves investing directly. Funds Under Management (AUM) in North America is in excess of $37.4 trillion in 2017, with the industry constantly attracting new investors funds hoping to create wealth. Funds caused major damage to investors’ portfolios during the GFC and essentially re-packaging funds as ETFs and having them traded on the exchange does not change the risk investors take or returns, they can achieve.
Further any GFC style event will have the same consequences for investors Given this, investors need to aware of these new investment alternatives and not get fooled thinking they have more control just because they are bought and sold on an exchange. They are still managed investments and like prior to the GFC, anyone investing directly in good stocks you would have significantly outperformed. Over the past three years just buying one of the FAANG stocks alone and holding it to today the investor would have significantly beaten the fund managers and index ETFs.
FAANG stocks vs S&P 500 since 2015
It has been no secret that the FAANG (Facebook, Apple, Amazon, Netflix and Google) shares have been amongst the highest growth stocks in recent years. That said most of this year they have all fallen heavily whilst the market continued to make all time highs.Yet they have still outperformed the S&P of the past three years. The FAANG stocks account for around 10 per cent of the market capitalisation of the entire S&P 500 index. While technology stocks, as a whole, make up around 25 per cent, which certainly is a big part of the S&P 500.
Comparing FAANG stocks vs ETFs since 2015
As a trader and investor you have an obligation to look after your own money and if you could receive a higher return taking the time to equip yourself with the right knowledge and education wouldn’t you do it? Luckily for the fund managers most will not take the time for fear of getting things wrong and losing money.
Whilst it is generally not considered wise to invest in one sector, owning all of the FAANG stocks would have made anyone happier and richer over the past few years. But would it surprise you that if all an investor did was buy the top 10 stocks on the S&P 500 that again the investor would have outperformed index ETFs on the S&P and the majority of funds over the same time frame.
Getting back to the FAANG stocks none are really showing strong signs that the fall is over. That said, it may not be too long before we see some signs of life in them again.
With the Dow, S&P and NASDAQ all in negative territory for the year alongside Facebook, Apple and Alphabet shares, the Faang stocks
- FAANG stocks have shead $1 trillion in Market capitalisation from highs this year
- FAANG stocks make up 10% of the S&P 500 Index
- Facebook & Alphabet in the Red for the year
- Best performer over the years has been Netflix, which is under threat from Disney’s streaming service Disney + alongside Hulu which Disney owns a 60 per cent stake in. This will put serious pressure on the company in 2019
- Around 3 per cent drop in market cap just from the FAANG stocks falling recently, if they had not fallen the market would have been up 4 per cent for the year.
If we look at the FAANG stocks performance this year, it has been exciting to watch given that after they rose strongly early on, however they all have suffered large falls. Facebook has fallen over 30 percent since its high of $218.62 in July; Apple fell just over 20 percent from a high in October; Amazon fell nearly 30 percent from a high in September; Netflix around 35 percent from a high in June and Alphabet/Google fell around 20 percent from a high in July.
Whist the FAANG stocks falls recent months have been devistting to many investors it is important to remember just how far they have risen in recent years. In the past three years, Facebook (FB) shares have risen 93 per cent, Apple (AAPL) 95.73 per cent, Amazon (AMZN) 403.93 per cent, Netflix (NFLX) 424.35 per cent and Google (GOOG) 103 per cent. When you look at those returns then I am sure investors in these stocks would be pretty happy.
Here are the numbers.
FAANG stocks are trading at High PE ratios
- F 19.9
- A 14.9
- A 83.84
- N 95.33
- G 39.98
- S&P 500 19.05
YTD Performance as of 11/21/18
- F -27%
- A +2.74%
- A +31.2
- N +45.85%
- G -1.89%
Fall From 2019 highs
- F -33%
- A -23.75%
- A -26.7%
- N -36.23%
- G -19.84%
- Average loss 27.9 per cent
S&P 500 in the negative for the year -0.19%
- 8.6 per cent since high
Past 5 years
- S&P has risen 51.61% whereas Facebook is up 201.8%
- Apple up 160.6%, Amazon up 327.9%, Netflix up 510.73% and Google up 107.05%
Dale Gillham is Chief Analyst at Wealth Within and international bestselling author of How to Beat the Managed Funds by 20%. He is also author of Accelerate Your Wealth—It’s Your Money, Your Choice.