You know you've made it when you're part of an acronym.

The FANGs​, composed of Facebook Inc. (FB), Inc. (AMZN), Netflix Inc. (NFLX) and Alphabet Inc. (GOOGLGOOG) (formerly Google Inc.) have surged past the broader market in recent years, becoming much more than what they started their lives as: A photo-sharing site, an online bookstore, a DVD mailing service and a search engine with a DIY word art logo. 

Facebook now owns the wildly popular Instagram in addition to its original social media platform, and its ambitions include connecting everyone on the globe to the Internet, or at least, some version of the Internet. Amazon has become a leader in cloud computing, and its clients include Uber, Airbnb and the Department of Defense. Netflix, in addition to being yet another Amazon Web Services customer, accounts for a third of all Internet traffic from time to time. Alphabet does everything. (See also: Are Facebook, Amazon and Alphabet Unstoppable?)

Tracking the FANGs' Performance

Given that these companies' growth is apparent to anyone with an Internet connection, the growth in their share prices over recent years should come as little surprise. They have all more than doubled over the past five years. Facebook and Netflix hit rough patches around 2013, though both have more than tripled in the past three years. Meanwhile, the broad-based Russell 1000 Index, tracked here using the iShares Russell 1000 ETF (IWB), has returned just 55% over the past five years and 30% over the past three.

FANG returns vs the Russell 1000 Index
  Year-to-date (YTD) Trailing twelve months (TTM) 3 year 5 year
Facebook -4.69% 31.89% 254.86% 160.92%
Amazon -27.78% 33.82% 87.75% 177.44%
Netflix -27.16% 29.98% 233.78% 165.02%
Alphabet -9.54% 33.85% 85.36% 130.58%
Russell 1000 -9.68% -8.54% 30.06% 54.53%

In the past 12 months, the straggler has been Netflix, with a still-impressive 30% return. Facebook returned 32%, while Alphabet (measured by its voting class A "GOOGL" shares) and Amazon clocked 34%. The Russell 1000 slipped 9%, including dividends, which none of the FANGs pay.

This disparity speaks of the absence of market breadth in recent months. A handful of tech stocks have seen ferocious gains, but the rest of the market has slumped. Jessica Binder Graham of Goldman Sachs pointed out in January that the S&P 500, which slid 0.7% in 2015 without dividends and rose 1.4% with them, would have fallen a full 4% without Facebook, Amazon, Alphabet and Microsoft Corp. (MSFT), to prop it up. (Read also, 2 Reasons Why Investors are Worried about 2016.)

All of which makes the FANGs' year-to-date performance a challenge to interpret. All have fallen, Facebook least severely at 5% (4% on Monday alone). Netflix and Amazon have shed more than a quarter of their market caps. The Russell 1000 has fallen 7%. So the FANGs quality items on the clearance rack, the victims of short-termist panic over oil and China? Or are we seeing a correction? According to the second interpretation, the market had no right to be near-flat in 2015, having been saved only by investors' flight to a hyped-up acronym. Having been unjustifiably pumped up, is the FANG bubble now popping?

The Bottom Line

Facebook, Amazon, Netflix and Alphabet have roared past the broader market over the last five years, three years and twelve months, but year-to-date they've plummeted along with the market – in Amazon and Netflix's cases, even further. On the one hand, they're the victims of the same anxiety that's driving losses in equities around the world. On the other other hand, they prospered while the rest of the market floundered in 2015, perhaps indicating a flight to perceived quality that's now reversing itself.


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