A look at the Baillie Gifford American fund highlights this positioning. All of the Faang names, bar Apple, sat among its top 10 holdings at the end of October, representing 22.5 per cent of the vehicle’s assets.
These companies have done much to drive US equity market movements – both up and down – in 2018 and earlier years. But the Faangs are now proving divisive, and many of them face company-specific controversies, from tax allegations to privacy concerns. As such, they could face challenges such as regulatory action, or a loss of faith among consumers.
These issues, and broader differences of opinion on the direction of equity markets, have left investors divided on how these shares will perform in the future. But whether they crash, plateau or again rise to new heights, the decision of whether to back them or not will most likely have a material effect on returns.
Many of the funds in our analysis do have significant exposure to the Faangs within their top 10 holdings. Axa Framlington American Growth, for one, has every name bar Netflix in its top positions, with the other four representing nearly 21 per cent of assets. Of the 20 funds in the table, 18 have at least one Faang stock in their top 10.
Similarly, several of the vehicles have hefty allocations to the technology sector: for UBS US Growth, this comes to 43.8 per cent. But for some names classifications may underplay tech exposure; Baillie Gifford lists just a 13.4 per cent weighting in IT, less than its exposure to Faangs alone.
The second-best performer over five years, Morgan Stanley US Growth, has 18.9 per cent of assets allocated to the tech sector, with an 8.9 per cent position in Amazon making up its biggest holding.
Skinning a cat
Tech isn’t the only big play for the winners: the Morgan Stanley fund’s biggest sector weighting is a 27.9 per cent position in healthcare, with one of its top holdings in genomics company Illumina. The vehicle has 24.7 per cent of assets allocated to communication services, with 20.6 per cent in consumer discretionary names.
It’s not just sector preferences where the top-performing names are taking different approaches. Take Vanguard US Opportunities, which sits in third place based on its five-year returns (unlike most of the firm’s offerings, this is an active fund).
Whereas Baillie Gifford American has prospered by tending to hold between 30 and 50 stocks and having more than half of its assets within the 10 biggest positions, Vanguard’s offering is much less concentrated. The latter was invested in 230 stocks as of the end of October, with 26 per cent of assets tied up in its top 10.
