Internet companies made up 0% of the S&P 500 in 1996.
Today, they account for close to 10% of the S&P 500.
Whether it’s “FANG,” “FAANG” or “FANG and Friends,” U.S. internet and e-commerce companies have been growing like gangbusters.
Their stocks have been on fire, too. Through the first half of this year, Facebook (45.5%), Amazon (27.8%), Netflix (34.5%) and Google/Alphabet (18%) all roared past the S&P 500 (9.8%) in terms of total returns.
Check out this Goldman note from early June…
Above, FAAMG (Facebook, Amazon, Apple, Microsoft and Alphabet) was responsible for roughly 40% of the S&P 500’s move — and nearly 55% of the Nasdaq-100’s move — through June 7.
The market cap created by these five companies in less than six months was equivalent to the existing market caps of Boeing, Comcast, IBM, UPS, Kroger, Boeing and Morgan Stanley … combined!
But, it’s not like this group’s outperformance is anything new…
If you go back five years, the original FANG stocks are up roughly 9X, 3X, 19X and 2X the S&P 500’s 90%.
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A couple of months ago at an investment conference in Dallas, one value manager told me:
“FANG and friends” (add in Apple, Microsoft, Salesforce and a few others) have accounted for 75% of S&P 500 returns since 2010.”
Late last year, CNBC’s Jim Cramer thought the run of the original FANG stocks might be getting a little long in the tooth. So, he crowned a new acronym. He dubbed FAAA (Facebook, Alibaba, Alphabet and Amazon) the new initials for red-hot, growth plays.
He was on to something here with his addition of Alibaba. Except, I like an all-China version even more.
In China, the acronym they use is “BAT.” The FANG of China is Baidu (BIDU), Alibaba (BABA) and Tencent (TCEHY).
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For the record, these stocks have all beaten the S&P 500 in 2017, too. They’ve even beaten the FANG stocks on average, as well. Baidu is up 34.2%, Alibaba is up 90.8% and Tencent is up 73.4%.
Basically, Baidu is Google’s Alphabet … Alibaba is a combination of Amazon and eBay … and Tencent is Facebook.
These Chinese companies are growing faster than their U.S. counterparts…
BAT’s three-year average revenue growth rate (36.9) is 28% higher than FANG’s (28.8). And no slowdown is in effect. In the latest quarter, BAT’s average growth rate (41.7) is 36% higher than FANG’s (30.7).
And its future growth potential is higher, too …
Consider that some 89% of the U.S. population has internet access. In China, just 52% of the population has internet access … so far. Also consider that the total internet population in the U.S. is 287 million people vs. a total internet population of 721 million people in China.
It’s a growth opportunity my colleague Kevin Carter, the founder of Big Tree Capital (an investment manager focused on emerging and frontier markets), calls “The Great Confluence.” He says:
Several powerful trends are coming together in a great confluence with staggering results. Just as the massive population wave in emerging markets is joining the consumer class … the tools, methods and models of consumption are undergoing a once-in-a-lifetime transformation as three major trends take hold.
Those three trends are …
- Smartphones are becoming affordable and ubiquitous.
- Mobile and Wi-Fi broadband internet access is surging.
- And the capital-formation process is occurring globally. (The “smart money” is investing in e-commerce growth.)
The growth story impressive. But the icing on the cake is that BAT is also cheaper than FANG …
BAT’s average forward P/E ratio (35.3) is 58% cheaper than FANG’s (84.2).
Plus, investors don’t have to stop at BAT. There are plenty of other Chinese internet and e-commerce companies for additional exposure …
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If you want exposure to China and beyond, there are emerging and frontier companies with a giant technology consumption story in play, too.
MakeMyTrip (MMYT) is the “Expedia of India” … MercadoLibre (MELI) is the “eBay of Latin America” … Naspers (NPSND) is the “KKR of South Africa” (basically, an emerging market venture capital fund) … Qiwi (QIWI) is the “PayPal of Russia” … and Yandex (YNDX) is the “Google of Russia.”
All these developing-country stocks are important in today’s evolving world.
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As an investor today, when you’re listening to all the noise surrounding FANG and Friends, don’t forget about “BAT and Friends.”
To gain broader China internet and e-commerce exposure, check out the KraneShares CSI China Internet ETF (KWEB) or the PowerShares Golden Dragon China Portfolio (PGJ).
And for internet and ecommerce exposure in emerging and frontier markets, consider the Emerging Markets Internet & Ecommerce ETF (EMQQ) or the Columbia Emerging Markets Consumer ETF (ECON).
Best,
Grant Wasylik
{ 3 comments }
You stock salesman are all alike. You think that everyone knows everything you do. So you tell us about the China BAT companies but you do not tell what their stock ticker symbols are so we can look them up to see if our brokage company will even let us buy the stocks. USAA stock brokage company will not let its members buy foreign stocks without charging a 70.00 commission instead of the 9. Commission on US stocks.
I chanaged to Charles Schwab Brokerage from USAA for this and other reasons, best move I ever made.
In NYSE… Baidu (ticker = bidu in NASDAQ), Alibaba (ticker = baba in NYSE) and Tencent (ticker = tcehy in OTC US).