Looking Like Bubble, FANG Rally Outpacing Heyday of Tech Frenzy

(Bloomberg) -- The rally in the FANG block of tech shares and its megacap brethren just surpassed a dubious milestone.

An index of 10 tech growth shares pushed its advance to 23 percent so far this year, giving the group an annualized return since early 2016 of 67 percent. That frenzied pace tops the Nasdaq Composite Index’s 66 percent return in the final two years of the dot-com bubble.

“Lately, it seems, these stocks can do no wrong,” George Pearkes, a macro strategist at Bespoke Investment Group, wrote in a note. It makes “us wonder if this is a mini-1999 all over again,” he said.

Consider Wednesday, when the NYSE FANG+ rallied 1 percent even as the four major U.S. benchmark indexes retreated. The group was little changed as of 3:07 p.m. in New York, while the S&P 500 was down 0.1 percent.

In addition to the quartet of Facebook, Amazon, Netflix and Google, the NYSE index also includes Apple, Twitter, Alibaba, Baidu, Nvidia and Tesla. These companies have drawn money as investors bet that their dominance in areas from social media to e-commerce will foster faster growth.

Analysts expect their profits to increase 22 percent over the next three to five years, double the pace in the S&P 500, estimates compiled by Bloomberg show.

It’s not the first time that Wall Street voiced warnings on FANG stocks. In November 2016, Jeff Gundlach, chief investment officer at DoubleLine Capital LP, urged investors to avoid the group. Eight months later, Howard Marks, the co-chairman of Oaktree Capital Group LLC, listed addiction to FAANG-fomented gains among a handful of investor vulnerabilities that could spell doom for the bull market.

That hasn’t stopped investors from flocking to these high flyers. In fact, their gains have been accelerating. The NYSE FANG index has risen 76 percent in the past year, picking up pace from 41 percent in the previous 12 months.

And their valuations are rivaling those that tech stocks fetched during the heyday of the dot-com era. At 64 times earnings, the companies in the NYSE FANG+ Index are valued at a multiple that’s almost three times the broader gauge’s. That compared with 2.7 in March 2000.

To contact the reporter on this story: Lu Wang in New York at lwang8@bloomberg.net.

To contact the editors responsible for this story: Arie Shapira at ashapira3@bloomberg.net, Jeremy Herron, Dave Liedtka

©2018 Bloomberg L.P.