By Jeff Weniger
Last year, we wrote "Time to Move from FAANGs to SEPTICS?" Let's revisit the topic.
The FAANG pack consists of Facebook (NASDAQ:FB), Apple (NASDAQ:AAPL), Amazon (NASDAQ:AMZN), Netflix (NASDAQ:NFLX), and Google's parent, Alphabet (NASDAQ:GOOG) (NASDAQ:GOOGL), which were knocking the lights out of virtually everything else in the stock market at the time.
SEPTIC is our tongue-in-cheek acronym for a handful of unloved S&P 500 industry groups.
The SEPTICS are quite different from the FAANGs because they are a hodgepodge of industries - including packaged foods, tobacco, and chemicals - that I threw together just because it made a funny acronym.
The relentless multiyear FAANG trend ended in June, though the group has bounced sharply higher in recent weeks.
Figure 1 speaks for itself.
Figure 1: Cumulative FAANG Outperformance vs. SEPTICS
Figure 2 shows the return of the two groups since we published the first SEPTICS blog post mentioned earlier. Netflix and Facebook started to buckle shortly after the post went online.
Figure 2: FAANGs vs. SEPTICS, 6/11/18-1/9/19
It Was Never About the SEPTICS
What was the genius of the SEPTICS? There was no genius. Those industry groups were selected for no reason in particular. The great thing about the SEPTICS in 2018's second half was simply that they were not FAANGs.
Remember the first chart that showed the FAANGs outperforming by 867 percentage points before collapsing? Figure 3 shows the FAANGs against two other ridiculous, unscientifically bunched groups: the RAWFISH and DOGS.
Figure 3: FAANGs vs. a Randomly Selected S&P Industry Hodgepodge
It is basically the same chart. That's because the FAANGs walloped just about everything in the last five years.
Figure 4 repeats the table above, only this time it has the FAANGs against the RAWFISH and the DOGS.
Figure 4: FAANGs vs. Other Industry Hodgepodge, 6/11/18-1/9/19
With the FAANGs still up by hundreds of percentage points relative to… well, relative to just about everything… fortunes in 2019 are again going to depend on whether those five stocks are working or not, and whether investors are in or out.
If the tide is going out once and for all on the high fliers, then SEPTICS, RAWFISH, and DOGS - anything that populates value indexes - may finally catch some prolonged outperformance.
Jeff Weniger, CFA Asset Allocation Strategist
Jeff Weniger, CFA serves as Asset Allocation Strategist at WisdomTree. Jeff has a background in fundamental, economic and behavioral analysis for strategic and tactical asset allocation. Prior to joining WisdomTree, he was Director, Senior Strategist with BMO from 2006 to 2017, serving on the Asset Allocation Committee and co-managing the firm's ETF model portfolios. Jeff has a B.S. in Finance from the University of Florida and an MBA from Notre Dame. He is a CFA charter holder and an active member of the CFA Society of Chicago and the CFA Institute since 2006. He has appeared in various financial publications such as Barron's and the Wall Street Journal and makes regular appearances on Canada's Business News Network (BNN) and Wharton Business Radio.
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