3 Funds, 3 Stocks to Tap the Tiny Tech Trend

It’s no secret that large technology firms have led the way for much of the bull market.

(Image credit: Illustration by David Plunkert)

It’s no secret that large technology firms have led the way for much of the bull market. By now, every investor knows that FANG stands for Facebook, Amazon.com, Netflix and Google (although Google is now Alphabet). From the beginning of the bull market in 2009 through 2018, tech stocks in the large-company Standard & Poor’s 500-stock index edged out tech stocks in the small-cap S&P SmallCap 600 by a half-percentage point per year, on average. In 2019, Big Tech pulled in front big time, returning 50.3%, compared with 39.6% for small-tech firms.

But small tech firms may be poised to close the gap, says Jim Paulsen, chief investment strategist at market research firm Leuthold Group. The “mini FANGs” (as he likes to call them) are currently trading at about the same valuation as big tech names, when small fries have historically commanded a premium. And analysts estimate that over the next three to five years, profits for the small tech stocks will increase at twice the rate of big-tech earnings.

Although small stocks tend to come with more volatility than large ones, small tech firms will largely avoid some of the risks tied to the tech behemoths. “These firms aren’t in the crosshairs of regulators over privacy or antitrust issues,” he says. Paulsen recommends shifting as much as 50% of whatever you have allocated to tech stocks into smaller names.

Here are six ways to do that.

Prices, returns and other data are through December 31. Annual revenue figures are based on analyst estimates for calendar year 2019. Sources: Morningstar Inc., Zacks.

Ryan Ermey
Associate Editor, Kiplinger's Personal Finance
Ryan joined Kiplinger in the fall of 2013. He writes and fact-checks stories that appear in Kiplinger's Personal Finance magazine and on Kiplinger.com. He previously interned for the CBS Evening News investigative team and worked as a copy editor and features columnist at the GW Hatchet. He holds a BA in English and creative writing from George Washington University.