Bloomberg Market Specialist Michael Pruzinsky contributed to this article. The original version appeared first on the Bloomberg Terminal.
Background
Post-pandemic logistics disruptions and supply-demand imbalances have been worsened by Russia’s invasion of Ukraine, helping to send April consumer-price inflation rates to 8.3% in the U.S., 12.4% in Poland, 17.8% in Russia and 70% in Turkey.
Traditional industries such as mining have been able to pass on costs, boosting profit margins.
However, tech companies saw margins slip, losing support from impatient investors as risk-free interest rates soared. Last week, Saudi Arabian Oil Co. surpassed Apple Inc. to become the world’s most valuable company.
The issue
Global stock markets are experiencing a leadership change as the risk of stagflation increases.
Bloomberg Indices introduced the Bloomberg Fuel, Aerospace, Agriculture, Nuclear, and Gold (FAANG) 2.0 Index to track national defense and resource security companies. The index has gained 63% in the past two years, nearly twice as much as the index tracking tech giants Facebook, Amazon, Apple, Netflix, Google, and five others.
Forecast profit margins of the 49 FAANG 2.0 index members also doubled to 10.8% over two years. The reason FAANG 2.0 index members avoided the 34% slump incurred by the NYFANG tech giants? FAANG 2.0 index members have often positively correlated to increases in underlying commodities, making the benchmark an effective hedge against inflation. Historically, commodities are one of the few asset classes that can benefit a portfolio in a rising inflationary environment.
FAANG 2.0 index members can also pass on higher costs as prices increase.
Tracking
To compare the performance of the two indices:
- Type “faang 2.0” into the command line and select BFAANG Index – Bloomberg FAANG 2.0 Price
- Return Index. Select GP from the menu. The shortcut is BFAANG Index GP <GO>.
- In the Add Data box, type “fang+” and select NYFANG Index – NYSE FANG+ Index.
- Type “profit margin” in the Add Data box and click Update to add it to both the indexes.
- Click Edit in the red toolbar. Set Axis to R1 for all. Set Panel to Panel 1 for price and Panel 2 for margins.
- Click Color/Style to adjust the appearance and hit Update.
- Change start date to 05/16/2020.
- Click Actions to save. The shortcut is G #FFM 1574 <GO>.
For more information on this or other functionality on the Bloomberg Professional Service, click here to request a demo with a Bloomberg sales representative. Existing clients can press <HELP HELP> on their Bloomberg keyboard.