GE & FAANGs: History Is Shouting in Our Ears
Published January 10, 2019
Head of Equity Strategy
The FAANG trend is coming apart. Even after their recent bounce higher, an equal-weighted basket of Facebook, Amazon, Apple, Netflix and Google parent Alphabet—the darlings of yesteryear—has fallen a collective 23% since June 22, way behind the S&P 500’s loss of 10.2%.1 With both Amazon and Apple touching $1 trillion valuations last year, let’s reassess the story of another onetime darling growth stock: the General.
General Electric could once do no wrong, too. GE’s fall to earth after peaking at around $600 billion in 2000, a fall from grace accompanied by so many highfliers of the 1990s, ushered in a reversal in market leadership. It marked the moment that Value took value took the baton from growth. From GE’s valuation high to the stock market’s October 2002 low, the S&P 500 Value Index was able to pick up 1,282 basis points (bps) over its counterpart.
But it wasn’t just the 2000–2002 bear market where value shined. When it came time for a fresh stock market bull from 2002 to 2007, the investment style crushed growth. Forget the 1,282 bps that value picked up during the bear; the real money was made in the next 7,325 bps from the market low through May 16, 2007.
Given value’s ever-so-slight leadership in last year’s second half amid the carnage in the FAANGs, maybe 2018 marked the moment the big darlings “pulled a GE.”
Are the FAANGs shouting an important message?
The Deeper Story
There are 34-year-olds who have been in the business for 12 years and haven’t seen a prolonged value cycle. That almost includes me, pushing 40, gray hair, the whole lot. It’s been so long since the Graham & Dodd2 that I read almost 20 years ago has actually worked. At least as far as the traditional Morningstar style boxes are concerned, you start to forget what it feels like to see growth stocks really lag.
Look at the bold disparity in the market’s internals. From July 2006 through September 2018, the S&P 500 Growth Index returned 11.4% annually, while its value counterpart put up 7.0%. Cumulatively, growth returned 271%, more than double value’s 129%.
For perspective now that value is catching a bid, its cumulative outperformance since September is only about 3 percentage points.3 In other words, if value is to cut into that 100+% lag from 2006 to 2018, this is first inning stuff.
When GE started to fall from grace in 2000, a seven-year value cycle was lit. Seven years is a long time. It’s been a few months.
Are the FAANGs telling us to remember history?
1Data through 1/3/19. Sources: Bloomberg, WisdomTree.
2Benjamin Graham and David Dodd, the founding fathers of value investing. “The Intelligent Investor” (Graham, originally published 1949, updated multiple times until 2003) and “Security Analysis” (Graham, Dodd, 1934) make necessary reading for finance-interested college-age readers with still-malleable investment philosophies.
3Through 1/3/19. Sources: WisdomTree, Bloomberg.
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About the contributor
Head of Equity Strategy
Jeff Weniger, CFA, has been with WisdomTree since 2017 and serves as the Head of Equities. He shapes the firm’s market outlook through a combination of macroeconomic and fundamental analysis. With more than two decades in investment strategy, Jeff is known for his work on market cycles and valuations. Before joining WisdomTree, Jeff was with BMO Private Bank and BMO Global Asset Management for 11 years. At BMO, he sat on the firm’s Asset Allocation Committee and co-managed ETF model portfolios across the U.S. and Canada. In 2013, at age 32, he became the youngest member of BMO’s Global Investment Forum. When he left BMO to come to WisdomTree, his final role was Director, Senior Strategist in the Office of the CIO in 2017.
Jeff is a frequent television guest on networks such as CNBC, Bloomberg, and Schwab, with regular print appearances in The Wall Street Journal, Barron’s and Reuters. He also appears weekly on the Behind the Markets podcast and is a regular on SiriusXM’s The Business Briefing. On X, Jeff has developed one of the larger followings in financial media. He earned a B.S. in Finance from the University of Florida and an MBA from the University of Notre Dame. He has held the CFA charter since 2006.