Of this group, which we have dubbed FANAMA, four out of the six names are down 20% or more from all-time highs.
FANAMA Market Cap
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As a byproduct of this underperformance, the aggregate weight of these companies in the S& 500 Index has slumped from nearly one-quarter of the Index at its peak to 21.4% currently.
S& 500 Index Weights: Apple, Amazon, Meta, Alphabet, Microsoft, Netflix
This performance has been a remarkable turnaround from 2020, where all six names handily outperformed the 18.4% return on the S& 500.
Meta and Netflix—both major stay-at-home beneficiaries—now have market capitalizations that are well below pre-COVID-19 levels. Amazon, after plunging 14% on Friday, is nearly lagging the S& 500 since 2019—an almost unimaginable scenario back in 2020.
Total Returns since 12/31/19
After drawdowns of more than 50% for both Meta and Netflix, those companies would have to have returns of 99% and 262%, respectively, simply to recover back to their peak market caps.
% Drawdown and % Gain Needed to Recover
The Index was constructed with a weighting approach aligned with WisdomTree’s original idea that weighting indexes by dividends, instead of market cap, can improve valuations and mitigate exposure to market bubbles.
While a quality company can be defined in many ways, WisdomTree has included a cash dividend screen on its quality Index as a consistent dividend payment is a signal of corporate health and cash management discipline.
From this perspective, this Index screens non-dividend payers like Amazon, Meta, Alphabet and Netflix as “anti-quality.”
Index Weights: Apple, Amazon, Meta, Alphabet, Microsoft, Netflix
The under-weight weighed heavily on relative performance in 2020 and most of 2021 until a sharp turnaround last November.
Since November 19, the WisdomTree U.S. Quality Dividend Growth Index has outperformed the S& 500 by 900 basis points (bps).
Cumulative Returns: WisdomTree U.S. Quality Dividend Growth/S& 500
Going forward, with equities challenged by the combined forces of rising rates, elevated valuations, and profit margins being squeezed by inflation, a basket of dividend payers that is over-weight in high-quality companies may be best positioned to maintain margins, control for valuations, and provide a cushion to returns with stable and growing dividend payouts.