100.04 -0.59 (-0.59%) Sell

FANG investors looking to exit as part of sectoral rotation

13 min read

DIAMONDBACK ENERGY, INC. ranked among the worst performers on Tuesday. It delivered -0.59% to close at 100.04. On a day when the overall market breadth was 35%, it closed higher than 4% of the market. In comparison, the benchmark SP500 index closed today at -0.0004%.

[Themes containing FANG]

Buy-and-Hold investors in FANG experienced a maximum drawdown of -28.5% over the last three months. It delivered -16.99% during this strong bearish trending period. There were both Long and Short signals during this period, where the short signals were significantly more profitable than the long signals.


FANG has been underperforming the SP500 index in recent time. It showed significant outperformance (compared to the SP500 index) from 11 Jan, 2016 to 9 May, 2018. Over the last 2 years 11 months and 7 days, FANG outperformed the SP500 index on 51% days.

During the last three months FANG delivered profits on 53% days. However, it still managed to end this period in a loss. It's best return during this period (of +4.22%) was on Monday, 26 Nov, 2018. While it's worst loss in the same period (of -6.32%) was on Tuesday, 4 Dec, 2018. The longest stort-term trend during this period was 5 profitable days, which started on 27 Sep, 2018 and went on till 3 Oct, 2018. This bullish trend returned +6.38% to investors.

The last 12 months saw FANG's investors making profits in 5 months and incurring losses in 7 months. FANG was less consistent in delivering monthly returs than SP500 index. FANG was also a more risky investment than SP500 index as it's worst month in the last year, Oct 2018, returned -17.87% compared to -7.28% returned by SP500 index in Oct 2018. FANG had a longer winning streak of losing months than SP500 index. It went down in 3 straight months (from Oct 2018 to Dec 2018) during which period it delivered -29.0%. It is interesting to note that both FANG and SP500 index significantly outperform during months when quarterly/annual results are announced.

Everyone has the brainpower to follow the stock market. If you made it through fifth-grade math, you can do it .
-- Peter Lynch

FANG is currently seeing overall increase in volatility. In comparison, the SP500 index is seeing increase in volatility. During the last three months, there was a significant surge in FANG's volatility from 2 Oct, 2018 to 9 Nov, 2018. While there was a significant surge in the SP500 index's volatility from 14 Sep, 2018 to 29 Oct, 2018.

Advanced/professional short-term investors should note that FANG has negative skewness in it's return distribution. This indicates that investors may need to stay invested through long periods of drawdown before expecting a recovery.

FANG has more chance of extreme outcomes than the SP500 index. Therefore, FANG must receive a lower allocation than SP500 in your portfolio. SP500 index usually has shorter drawdown period than FANG.

On a general note (since you are interested in FANG), two instruments that deserve special mention are AYTU and EPIX. They have significantly outperformed the overall market.

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