Facebook, Inc. (FB), Apple Inc. (AAPL), Amazon.com, Inc. (AMZN), Netflix, Inc. (NFLX), and Google parent Alphabet Inc. (GOOGL), collectively known as FAANG stocks, dominate global culture in many ways. These companies are not just constantly in the news; they are also the go-to source for the news itself for millions of users around the world. They make up a larger and larger portion of the global equity market, with no apparent end to their growth in sight.

These companies are global powerhouses, many of which have market caps that dwarf entire constellations of competitors. Recently, though, some of them have come under fire: Facebook has been plagued by ongoing privacy issues, while Apple has experienced troubles with taxes in Europe. The variety of issues arising in recent months, combined with the ever-increasing presence of these five companies in the worldwide financial landscape, have prompted some analysts to speculate whether the FAANG group might be overrepresented in the global equity market. (For more, see: Will Privacy Issues Ruin Facebook's Business Model?)

8% Weight in the MSCI World ndex

A report by MSCI.com examines the representation of the FAANG stocks in the MSCI World Index, a proxy for global equities that covers large- and mid-cap stocks across 23 developed markets countries. All of the FAANG stocks are from the technology sector, and they collectively accounted for an 8% weight within the index as of the end of February 2018. Over a period of 43 years, a concentration of that rate for the top five stocks is actually slightly below the historical average. Indeed, a peak weight of 18% for the five largest companies was achieved in 1977, and there was an ongoing period of 11 years from late 1974 through early 1986 during which the top five companies collectively carried a higher level of representation than the current FAANG weight.

The 8% weight matches the level seen in late 2003. The top five names have collectively been weighted slightly higher than 8% across the 43-year history of the index, suggesting that the FAANG stocks are not abnormally represented. Interestingly, the aggregate weight of the top five companies in the index during the period just prior to the 2008 financial crisis was unusually low, although this information is not necessarily a predictor of future behavior. Notably, Netflix is the one FAANG stock that is not also a member of the top five names in the global equities market – that position goes to Microsoft Corporation (MSFT). (For more, see: Why Wall Street's Analysts Won't Give Up on Tech.)

Concentration of Top Stocks Actually Lowest in Decades

According to the report, analyzing the highest concentration level of the top five names during each individual decade of the index's history reveals that the current FAANG weight is actually far below these levels. The 1970s saw the highest concentration level, topping out at 18%. In January 1983, the five largest companies accounted for a weight close to 13%, while in March 2000, they accounted for around 11%. December 1999 saw the top names weighted at just under 10%. In each of these cases, the collective weight of the top five names was higher than the current weight of the FAANG stocks, not including Netflix and adding Microsoft in its place.

That's not to say that today's global equity market isn't changing. Indeed, the report suggests that "today's global equity market is more concentrated (measured by the collective weight of the top five stocks) than it has been in the last 15 years." However, taking a broader historical view back to the 1970s and 1980s reveals that the early 2018 concentration levels are not abnormal. For example, in 1976, the top two companies, International Business Machines Corporation (IBM) and AT&T Inc. (T), accounted for a combined weight of roughly 10%, which is more than the weight of all five of the top stocks in the early part of 2018. (For additional reading, check out: 5 Stock Picks to Outperform FAANGs.)

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