On the surface, almost nothing happened in U.S. stock and bond markets last year. But when you look beneath the surface, you see that 2015 should be known as the Year of the FANG Four.
Let me explain. Last year, the Dow Jones industrial average and Standard & Poor’s 500-stock index essentially broke even on a “total return” basis. Ditto for the Barclays U.S. aggregate bond index.
But if you look at the detailed numbers, which I got from AJO, a Philadelphia money-management company, you see all sorts of fascinating discrepancies, few of which (if any) were part of the mainstream predictions a year ago.
The Dow had a total return — price changes plus reinvested dividends — of 0.21 percent. The S&P 500, a much broader and vastly more important market indicator, had a total return of 1.38 percent. Yawn City.
However, when you look at the breakdown of the S&P’s components, you see something fascinating. The S&P’s “value” index — stocks selling at relatively low prices relative to profits and stated net worth — lost 3.13 percent for the year on a total return basis, while the higher-risk “growth” index gained 5.52 percent. That’s a huge difference. And it’s not what you would have expected to see in a turbulent year in which it felt that investors should be playing defense by owning value rather than playing offense with growth.
What accounts for this difference? Think of it as the bite of FANG. What Wall Street has taken to calling the FANG stocks — Facebook, Amazon.com, Netflix and Google (renamed Alphabet but retaining the GOOG stock symbol) — had an amazing year, with gains ranging from 34 percent for Facebook to 178 percent for Amazon. (Amazon’s founder and chief executive, Jeffrey P. Bezos, owns The Washington Post as his personal investment, not as an Amazon investment.)
I couldn’t get official numbers out of S&P, but based on my horseback estimate, the FANG Four accounted for more than the entire return of the entire S&P 500, and probably accounted for all or essentially all of the return of the S&P growth index. That’s what happens when you have four big stocks that rose an average of close to 100 percent during the year.
People like me, who don’t own any of those four stocks and probably never will, are the fortunate beneficiaries of the fantastic FANG year. That’s because my biggest stock investments are S&P 500 and total U.S. stock market index funds, whose performances got a major boost from FANG.
So even though I feel no inclination to buy those stocks now, I’m sure happy they made up a growing portion of my index funds last year.
There was a similar — but less extreme — example of differential returns in the bond world last year, too. The Barclays index for all U.S. bonds showed a 0.55 percent total return — price changes plus interest income. But there was a huge distinction among categories. Long-term U.S. Treasury securities had a total return of negative 1.21 percent, and the loss for all long-term bonds was a substantial 4.56 percent.
Meanwhile, despite all the news about Puerto Rico and mainland governments having financial problems, the Barclays municipal index showed a positive return of 3.30 percent. The almost eight-point difference between muni returns and long-term bond returns isn’t something I expected to see, any more than I expected to see the fabulous FANG Four performance.
On Monday, the FANG Four fell by amounts ranging from 2.2 percent (Google/Alphabet) to 5.8 percent (Amazon) while the S&P 500 fell only 1.5 percent. Is this a portent of things to come? I don’t know, and no one else does, either.
The one thing I do know, though, is that when we look back at the 2016 market a year from now, we’ll see plenty of interesting stuff. Even if, like last year, the overall markets’ results are considerably less than exciting.