The FANG stocks are some of the hottest stocks in the market YTD. The Young Research Bubble Basket which includes the FANGs plus Tesla is up 39% in 2017. Here, Bloomberg points out that even though the FANGs are widely recognized as a crowded trade and overpriced segment of the market, short interest is unusually low.
When it comes to calling the FANG stocks a bubble, few are willing to put their money where their mouth is.
A number of people have pointed out that shares of some of the most dominant technology companies, including Facebook Inc., Apple Inc., Amazon.com Inc., Netflix Inc. and Google parent Alphabet Inc., have perhaps risen more than the fundamentals deserve. Early this summer, Goldman Sachs Group Inc. strategists predicted an “air pocket” was coming in the FANG bubble. After a survey of investors, Bank of America strategists called FANG and other technology stocks the most crowded trade in the market. Oaktree Capital co-founder Howard Marks recently compared the FANG to the Nifty Fifty and dot-com stocks of the 1970s and 1990s, respectively, as well as other bubbles.
Nonetheless, despite the growing skepticism, the number of investors actually betting that the FANG stocks will tumble is far below the rest of the market and falling. Collectively, the short bets against FANG stocks accounted for just 2 percent of their traded shares. Exclude Netflix, and the average short interest for the group drops to just 1 percent. That compares with an average of 4 percent for the S&P 500. Under Armour Inc., which is the most heavily shorted stock in the S&P 500, perhaps for good reason, has a short interest of 30 percent. What’s more, just a few years ago, bets against FANG stocks were prevalent. In the autumn of 2012, more than 9 percent of the available shares of the FANG stocks were sold short.
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Jeremy Jones, CFA
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