FAANG Stocks are Adding Risk

Risk-smart investors should avoid concentrations. FAANG stocks have become large parts of many portfolios. Investors should seek to minimize their concentrations in these stocks. One method may be looking for alternatives to market capitalization weighting.


FAANG stocks, Facebook, Apple, Amazon, Netflix and Google have grown substantially. I’m not going to be so bold as to say that they are overvalued as I do not own a crystal ball. What I can say however is that they have become very large parts of most capitalization weighted indices. As investors there aren’t many things we can control. One thing we can do is avoid concentration. Market cap weighting portfolios generally works over time, however, this methodology by its very nature becomes concentrated in stocks and sectors and what commonly ends up being the wrong time. I advocate for the use of factors as an alternative to building diversified portfolios. If you are unsure of your portfolios concentration levels I’d be happy to take a look. Thanks for listening.

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