From the December newsletter from Provident Investment Management
This recent market rally has notably left behind large-cap technology names such as Facebook, Amazon, Netflix and Google — the so-called FANG stocks — which have been tossed out along with the widow-and-orphan dividend payers. All of the FANG stocks are down 5 percent or more since the election. What gives?
These companies have been strong performers for years (that’s how you win yourself a special acronym, after all). Their weakness may be a simple story of rotation, whereby investors monetize their winners to reinvest where they see better value.
There is a directly political angle as well. Big technology companies habitually rely on importing a lot of skilled foreign workers, and Donald Trump has threatened to end the popular H1B guest worker program while also making it harder to get permanent resident status vis-à-vis a green card. It is certainly understandable why the animal spirits that appear to be lifting industrial stocks don’t extend to Silicon Valley.
The point of our style of growth investing is to tilt the tables in your favor by owning good companies trading at reasonable valuations. Not every market is equally rewarding to our style. After a period of underperformance, our favored small- and mid-cap growth stocks have generally fared better than the overall market since the election.
This feels a bit lucky. We would normally expect our stocks to lag the market a little during times of uncertainty. Instead, we seem to be benefiting from the return of investors’ animal spirits. May this newfound optimism be richly rewarded.