The S&P 500 nosedived into a bear market last year as recession fears rattled Wall Street, and the benchmark index is still down 15% from all-time highs. But every bear market has ended in a new bull market, and the same outcome is all but inevitable this time around. That makes the current situation a buying opportunity for patient investors, and the FAANG stocks look attractive.
All five FAANG stocks crushed the S&P 500 over the past decade, and each one retains solid prospects for future growth. Investors can get significant exposure to the FAANG stocks through a specific Vanguard index fund. Of course, buying the stocks outright is also an option, but three of the five underperformed the S&P 500 over the past five years, while the Vanguard index fund in question outperformed.
The future looks bright for the FAANG stocks
The bull case for each FAANG stock is detailed below.
Apple (AAPL 0.34%) led the world in smartphone and smartwatch sales in the fourth quarter. Its lineup of trendy devices inspired immense consumer loyalty, and the company recently surpassed 2 billion active devices worldwide. That hints at strong growth for its services business in the coming years. Indeed, App Store spending is forecast to climb at 14% annually through 2026, and Apple Pay is the most popular in-store mobile wallet in the U.S., meaning Apple should be a major beneficiary as smartphone payments become more prevalent at physical points of sale.
Amazon (AMZN 0.82%) dominates the e-commerce industry. Its marketplace powered 38% of online retail sales in North America and Western Europe last year, and its massive logistics footprint gives the company an edge over its peers. But the company has more exciting growth prospects in the higher-margin industries of cloud computing and digital advertising. Amazon is the largest provider of cloud services, and it has quietly become the fourth-largest digital advertising company in the world in the world.
Alphabet (GOOG 1.39%) (GOOGL 1.47%) dominates the ad tech space, and its valuable internet real estate should keep it at the forefront of the industry for years to come. Google Search holds an astounding 93% share in internet search, which effectively makes it the gateway to the internet, and YouTube is the top U.S. streaming service as measured by viewing time. Additionally, Google Cloud Platform is the third-largest provider of cloud services.
Meta Platforms (META 2.54%) is the second-largest digital advertising company in the world. Its family of social media apps reached an incredible 3.7 billion people monthly in the fourth quarter, and Instagram, WhatsApp, and Facebook ranked among the 10 most downloaded mobile apps worldwide last year. Meta should be a major beneficiary of ongoing growth in digital ad spend, but its investments in generative AI and the metaverse could also pay off in the future.
Netflix (NFLX 3.63%) leads the streaming industry in global engagement, revenue, and profits, and its ability to create binge-worthy content far surpasses that of its peers. The company accounted for 40% of consumer demand for original content last year, more than the next five streaming services combined, and Netflix produced 13 of the top 15 original streaming programs. While the company eschewed advertising for years, its recent launch of an ad-support service significantly expands its total addressable market.
The Vanguard Mega Cap Growth ETF
The Vanguard Mega Cap Growth ETF (MGK 1.38%) tracks nearly 100 of the largest U.S. growth stocks. Its constituents include all five FAANG stocks, which collectively account for 31% of its weighted exposure, but it also includes Microsoft, Tesla, and Nvidia, which account for another 21% of its weighted exposure. That diversity makes the Vanguard ETF a little less risky than owning the FAANG stocks outright, though investors still get heavy FAANG exposure, as detailed below.
- Apple: 15.8%
- Alphabet: 7.1%
- Amazon: 5.8%
- Meta Platforms: 1.4%
- Netflix: 1.1%
The Vanguard Mega Cap Growth ETF crushed the broader market over the past decade. While the S&P 500 produced a total return of 219%, the Vanguard ETF soared 280%, or 14.2% annually. If that pace continues, $200 invested weekly would grow into $203,000 over the next decade and $969,000 in two decades. Of course, annualized returns of 14.2% are probably unsustainable over a 20-year period, but investors can reasonably expect the Vanguard ETF to beat the broader market in the long run.
The last thing investors need to know is that the Vanguard ETF bears a below-average expense ratio of 0.07%, meaning the annual fees would total $7 on a $10,000 portfolio. In short, this ETF is a cheap way to diversify across dozens of the biggest growth stocks on the market, which makes it a great option for risk-tolerant investors with a long time horizon.
