Global Equities: Goodbye FAANGs, hello MAMAAs

Are the FAANGs losing their bite? The latest US earnings season has revealed new opportunities and risks, says Pendal’s head of global equities ASHLEY PITTARD

• Global equities earnings growth extends beyond tech stocks
• Europe, small caps provide opportunities
• Find out about Pendal Concentrated Global Share Fund

FAANGs out, MAMAAs in. At least in terms of acronyms — maybe not in terms of earnings.

Facebook’s decision to change its company name to Meta Platforms — and the incredible performance of Microsoft, which is now the largest company in the world — has made obsolete the famous acronym that’s dominated global equity markets for five years.

FAANG (Facebook, Apple, Amazon, Netflix, Google) doesn’t work anymore.

Instead, the more homely, less ferocious, MAMAAs better represents the tech market leaders, says Ashley Pittard, head of global equities at Pendal. That’s Microsoft, Apple, Meta (Facebook’s new name), Amazon and Alphabet (Google’s parent company).

The new acronym doesn’t quite bare the teeth of the old acronym.

“During the last couple of quarters, other sectors away from the MAMAAs have been compounding really strongly,” Pittard says.

“We are getting through the US earnings season and most of the ultra-large caps have reported.

“You are seeing sales up 15 per cent. Earnings are up 39 per cent. Of that, 79 per cent have beaten on third-quarter earnings and 73 per cent have beaten on revenue.

“The results are still being impacted by the Delta lockdown which affected the September quarter earnings season, so it isn’t yet a true indication of what a re-opened, normalised environment is,” Pittard says.

“It’s upbeat for the third quarter. There was strong demand, productivity measures helped keep costs down and there are headwinds of supply chain cost pressures.

“But there’s no doubt that if you look at those FAANG stocks, it’s the first time in many years that they’ve missed on revenue,” Pittard says.

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“If you take Apple as an example, it missed revenue forecasts for the first time since 2017. Its earnings were in-line for the first time since 2016.

“Amazon missed on revenue. They’re getting hit on wages growth, supply chain and network inefficiencies.”

The result is a broadening out in earning growth.

“You’re continuing to see broadening of the sectors growing… and you will continue to see the rotation to other sectors and out of those MAMAAs stocks, which have been the darlings of the last five years.

Where to next?

So, the question is where to rotate into.

The stocks and sectors doing best are those leveraged to better economic growth including sectors like energy, materials, industrials, and financials, Pittard says. Small caps could also outperform.

“Defensive areas like consumer staples, health care and telecommunications aren’t growing by as much,” Pittard says.

He adds that Europe, which is relatively underweight tech stocks and overweight energy, materials, industrials, and financials, is growing faster than the US.

The ultra large tech stocks have led the S&P500 up more than double over the past five years, whereas the STOXX Europe 600, which measures a basket of European stocks, is up less than 50 per cent in the same period.

“It’s because Europe hasn’t grown earnings like the US over the last five years. That’s because the growth in earnings has been driven by tech stocks,” Pittard says. “But I expect this to mitigate.”

“I expect to see the European markets, small caps on Wall Street and sectors outside the MAMAA stocks to re-rate higher and that’s where there’s going to be earnings growth.”

About Ashley Pittard and Pendal Concentrated Global Share Fund

Ashley Pittard leads Pendal’s Global Equities investment boutique. He is responsible for setting the strategy, processes and risk management for the boutique and its funds including Pendal Concentrated Global Share (COGS) Fund.

Ashley has more than 24 years of finance experience, including roles in petroleum economics, global energy investment analysis and 20 years as a global equities fund manager.

Pendal COGS Fund is an actively managed, concentrated portfolio of global shares diversified across a broad range of global sharemarkets.

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