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The Impact of Single Stocks on Factor Returns

Bron: Article Nicolas Rabener, managing director of FactorResearch op CFA - 05 juli 2018

The famous FAANG quintet of Facebook, Amazon, Apple, Netflix, and Google has driven much of the performance of the Nasdaq 100 in 2018 and currently accounts for approximately 35% of the index.

Such a large contribution from a handful of stocks might seem extreme, but a select few stocks have historically accounted for a disproportionate share of stock market returns. Although it may seem counterintuitive, most stocks underperform their index because of the non-normal distribution of stock returns and the nature of market capitalization indexation, which rewards winners and punishes losers.

Factor portfolios are less affected by single stocks since they are usually constructed equal weight. Nevertheless, the relationship is worth exploring. Using the Value factor as a case study, how do single stocks influence factor returns? And how do the FAANG stocks influence six common equity factors?

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