The New York Stock Exchange FANG+ Index tracks the performance of ten of the biggest of the big U.S. technology stocks. This index has outperformed the S&P 500 by a remarkable 36 percentage points so far in 2023 and this trend has a number of implications for markets and investors.
The FANG+ index is made up of Meta Platforms Inc., Apple Inc., Amazon.com, Netflix Inc., Microsoft Corp., Alphabet, Tesla Inc., NVIDIA Corp, Snowflake Inc. and Advanced Micro Devices. Year to date, FANG+ has returned 44.6 per cent, easily outdistancing the S&P 500′s 8.2 per cent.
The dramatic divergence in performance is indicative of a narrow market – one driven by few companies. Rallies with narrow markets are considered more fragile than those supported by more stocks within an index.
All members of the FANG+ index are secular growth stocks and this is also telling. When money gravitates towards companies with reliable profit growth, this implies concern regarding profits for more economically sensitive stocks. It sounds counterintuitive, but growth stocks are a way of offsetting the risks of slowing economy and recession.
The strong growth of the FANG+ stocks has made them popular and driven valuation levels higher. The average trailing price to earnings ratio in the index is now 41.5 times, well ahead of the S&P 500′s 18.6.
U.S. markets are thus dependent on a few, expensive stocks. Investors should hope for a broadening of earnings growth to more companies to avoid a significant correction as the mega-caps pull back.
-- Scott Barlow, Globe and Mail market strategist
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Ask Globe Investor
Question: For years, I have calculated the adjusted cost base (ACB) and capital gains of my stocks myself and reported the data to the Canada Revenue Agency. Recently, however, I started using the CRA’s “auto-fill my return” service to download tax slips to my tax software. While filing my 2022 return, I noticed that the ACB I calculated manually for one of my exchange-traded funds – the iShares S&P/TSX SmallCap Index ETF (XCS) – differed substantially from the ACB on the T5008 slip issued by my broker. Specifically, in 2021 I purchased 200 units of XCS for $4,013.95, which I sold in 2022 for net proceeds of $3,997.05. However, the T5008 for 2022 shows the “cost or Book Value” as $4890.83. Surely, my broker can’t be wrong. What am I missing?
Answer: Yes, your broker can be wrong. It happens more often than you might think.
The other day, for example, I was helping my mother review her portfolio and noticed that the ACB of her Canadian Imperial Bank of Commerce shares was twice as high as it should have been. After staring at the screen in confusion for 10 minutes, I realized the problem: When CIBC split its shares two-for-one in May, 2022, my mother’s discount broker not only doubled the number of shares she owns (which was correct) but also doubled the total cost of her shares (which was not correct, as the total price she paid for her shares had not changed). The online portfolio statement made it look like my mom had an unrealized loss on her CIBC shares, when in fact she had a gain.
Something similar seems to have happened in your case. However, it’s a little more complicated as it involved a year-end reinvested – or “phantom” – distribution. Click here for my full explanation.
What’s up in the days ahead
Algonquin Power & Utilities is considering shedding its renewable assets. Is this good news for its shareholders? David Berman will share his thoughts. Meanwhile, Rob Carrick will tell us which cash equivalent investing products offer CDIC protection, and which do not.
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Compiled by Globe Investor Staff