Investments
October 26, 2021

Why We Don’t Invest In FAANGs

Because our portfolios are a well-diversified blend of funds, they do actually invest in the FAANGs, as well as thousands of other companies, just indirect

Facebook, Apple, Amazon, Netflix, Google. Companies many of us use in our everyday lives and which have all taken the stock market by storm in recent years. The shares of these giant US companies, collectively known as the FAANG stocks, make up a big portion of many investors’ portfolios. Their current valuations suggest the market expects plenty more growth to come. So it might come as a surprise to some that we don’t invest in them.

Are You Concentrating?

Investing directly in shares, FAANGs or otherwise, means you might be placing a significant portion of your wealth in a small number of companies. If you know them inside-out, are confident of their future prospects and have the time, knowledge and energy to monitor them, this could deliver a good outcome. If on the other hand things don’t go as planned for even one or two, given how much you’ve invested in them, that could put a big dent in your portfolio. This is known as concentration risk.

One of the best ways to overcome concentration risk is to invest in funds. A fund is a collection of shares, bonds or other types of assets. They typically contain anywhere from 25-250 investments, and can even have several thousand in some index-tracking funds. With a large number of holdings you spread the risk, so you’re not putting all your eggs in one basket.

Anyone For Lunch?

Invest in several funds and you’ve got yourself the makings of a well-diversified portfolio. Diversification is where your portfolio has exposure to lots of different areas, so that could include different types of asset classes such as shares and bonds, different regions such as North America, Europe and Asia and different sectors such as technology, healthcare and financial services.

There are no guarantees in investing. Any area could be among tomorrow’s winners or losers, but by diversifying across the lot you’ll always have exposure to whatever is doing well and not too much exposure to whatever is struggling. That’s why diversification is said to be the only free lunch in investing.

Sinking Our Teeth Into FAANGs

Because our portfolios are a well-diversified blend of funds, they do actually invest in the FAANGs, as well as thousands of other companies, just indirectly. Bearing in mind the FAANGs are among the biggest companies on the global stock market, naturally they’ll also feature more heavily than other companies. To put it into perspective, with a global index-tracker fund for example, you’ll invest more in just those five FAANG stocks than the entire UK, French and German stock markets combined. For us that’s plenty.

Source: FTSE Russell

Another reason we don’t invest directly in FAANG stocks or any other companies is, as the saying goes, “you can’t beat the street”. This refers to the difficulty of trying to outsmart Wall Street analysts or other teams of professional investors. Some wealth managers, as well as ordinary investors, do make their own investments in individual stocks. We believe, however, it’s best left to fund managers. Many of them have decades of experience behind them, are supported by large teams of skilled analysts and can dedicate all of their working hours to analysing companies.

Our Approach

We believe in playing to your strengths. So we think it’s sensible to leave the stock-picking to professional stock-pickers. While companies like the FAANGs have undoubtedly delivered excellent returns for many years, there’s no guarantee they, nor any other top-performing stock, will keep doing so in the future. That’s not to say we don’t think they will. We’re simply saying we’ll let the pros decide.

Our job is then to find those fund managers we think are among the best in the business. That’s why every fund in our portfolios has been thoroughly researched. This includes meetings with the fund team to better understand the philosophy, process, resources and culture better than any factsheet or fund screener ever could. It’s all with the aim to create the strongest portfolios we can to help you achieve your long-term financial goals.

Written By
Lucas Wood
Investment Analyst
Disclosure

Investing in securities involves risk and the loss of investment capital. Past performance is not indicative a future returns. Your advisor can discuss your tolerance for risk with you so that you understand the potential for loss before proceeding with a portfolio recommendation.

Share this article

Find Out More

To find out more about this topic and more, please fill in the form below to arrange a call back.

Access Full Recording

To access a full recording of the webinar, please fill in the form below. We'll email you a link to the video.

Thank you!
Your message has been received and we will arrange for a member of our team to contact you via email or phone to discuss your enquiry.
Oops! Something went wrong while submitting the form
Thank you! Enjoy the webinar.
The webinar recording is available to watch above and we will email you a link shortly, so you watch at your leisure.
Oops! Something went wrong while submitting the form

Join Our Newsletter

Stay up-to-date with financial news and insights delivered straight to your inbox. Sign up today.

You have successfully subscribed to our newsletter.
Oops! Something went wrong while submitting the form.
Please review the field format and try again.

Talk To An Adviser

You can reach us directly by calling us between the hours of 8:30am and 5pm at each of our respective offices and we will immediately assist you.

Request A Call Back

By completing this form, you are consenting to receive telephone communication from Skybound Wealth Management USA, LLC, in accordance with our Privacy Policy.
Thank you!
Your call back request has been received and we will arrange for a member of our team to call you at your desired time.
Oops! Something went wrong while submitting the form