How To Replace FAANGs With Cloud

If you were hoping for yet another contrived acronym to describe a group of stocks, you can stop reading now.

But if you are in the market for fast-growing technology companies that don’t face the same degree of uncertainty from trade wars or antitrust scrutiny, we think cloud-based businesses represent an attractive alternative to mega-cap companies in the Technology sector.

FAANG (Facebook, Amazon, Apple, Netflix, Google)1 stocks have tripled their market capitalization over the last decade and have been the main drivers of the S&P 500 Index’s return. But in the fourth quarter of 2018, they suffered meaningful drawdowns and bouts of volatility. When political tensions ratchet up, some investors could question whether it may be time to seek out a new engine of growth and returns.

In our view, cloud computing could represent one compelling alternative.

Recent Drawdowns

During the fourth quarter of 2018 market swoon, FAANG stocks declined by 23%, on average. By contrast, cloud computing stocks (as proxied by the BVP Nasdaq Emerging Cloud Index, or EMCLOUD), also experienced volatility but fell by half as much compared with the FAANGs. The parent company of Google, Alphabet, was the most resilient, but it still underperformed EMCLOUD by nearly 200 basis points (bps). This was surprising given that cloud companies tend to have higher volatility on account of their faster growth and smaller market caps, but they have also experienced greater total returns during the rebound as well.

Cloud vs. FAANG Performance (10/2/18 – 12/31/18)

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Cloud vs FAANG Performance 1022018-12312018

For fund, performance click here

Comparing the performance since the inception of EMCLOUD on October 2, 2018, we observe that while most of the FAANGs had negative returns, the BVP Nasdaq Emerging Cloud Index generated a return of 27.47%.

Cloud vs. FAANG Performance (10/2/18 – 7/31/19)

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