The ETFS FANG+ ETF (ASX: FANG) is an exchange traded fund on the ASX that offers Australian investors exposure to a portfolio of the top technology companies that are listed in the USA. This fund tracks the performance of the NYSE FANG+ Index with a holding proportion that closely resembles the index. The FANG+ ETF commenced operations on the 27th of February 2020. Therefore, it is a relatively new fund, however, it has yielded over 70% returns during this period. The Assets under Management has gone from a $1 million when the fund began operations to $208 million as of April 2021.
The chart above pits the FANG+ ETF up against the returns of the ASX-200 (orange line), S&P 500 (blue line), NASDAQ 100 (yellow line) during the Feb 2020 to April 2021 period. Its quite clear that the FANG+ ETF outperforms all these indices fairly comfortably. The reason for the outperformance is because of the star-studded companies that make up the FANG+ fund.
There are 10 stocks in the FANG+ ETF. They come from 3 different sectors – Consumer Services, Consumer Discretionary, and Information Technology. They have a median market capitalisation of $824.3 billion. All of these 10 stocks are listed in the USA and hence, the underlying assets are traded on US dollar. The ETF on the other hand is traded in AUD. Hence, with the AUD flying high against the US dollar recently, the dollar return of the ETF is affected. FANG+ is equally weighted across all companies (index constituents) and rebalanced quarterly.
As of the 12th of April 2021, here are all the 10 holdings in the FANG+ ETF:
|Alphabet Inc (Class-A)||10.7%|
|Facebook Inc (Class-A)||10.3%|
|Baidu Inc-SP ADR||8.1%|
While most of these companies are of American origin, Alibaba and Baidu are two of the largest technology companies in China. The ETF gives access to the best of the best global technology companies that trade on US stock exchanges. It also offers a simple solution to invest in them by removing cruxes such as foreign exchange, etc.
FANG+ will always have Facebook, Alphabet, Apple, Amazon, and Netflix as a part of their index. The other 5 companies on the other hand will be reviewed every quarter. The ETF is also equal weighted – this increases the risk-reward ratio for the investor.
The FANG+ ETF is one of the best performing ETFs out there. The 5 big tech companies over the past few years have outperformed everything index there is, and they now constitute over 20% of the S&P 500 Index. ETFS charges investors a 0.35% management fee per annum for the FANG fund. This fee is fairly inexpensive relative to the gains that the fund has generated so far and how the big tech are expected to perform going forward.
The performance of the fund can be seen above. The returns for period 1-year and over have been annualised. While the FANG+ ETF is fairly new and we do not have performance data for over a year, the underlying assets, that is, the holdings have performed remarkably over the last 5 years. In the second table, the calendar year returns of the NYSE FANG+ Index is very similar to the ETFS FANG+ ETF and its performances since 2016 have outperformed benchmark indices of every major developed market.
FANG offers a simple, low-cost access to the biggest technology companies in the world.
While past performance is no indicator of future performance, the FANG stocks have an unprecedented ability to outperform any sector or index in a year. These companies – Facebook, Apple, Google, and Amazon have a leg up in a variety of industries and are able to dominate markets and operate at high-margins.
- Market Risk – Since the FANG ETF is designed to track the performance of the NYSE FANG+ Index, the performance of the fund is almost identical to the performance of the Index. Market conditions and volatility will be present, however, given the diversification of the holdings, the risk is mitigated to some degree.
- Foreign Currency Risk – The fund itself is traded in AUD, however, the holding companies are traded in USD. This means that the exchange rate between AUD and USD determines the dollar returns an investor will make. For instance, if the AUD falls against USD after investing in the FANG ETF, the returns will be higher, and vice-versa.
The big techs are expected to continue their stellar performance through the rest of the year. With stimulus cheques periodically being introduced in the USA, the stocks will continue to be richly priced. All the 10 companies in the ETF have been thriving in the new normal that the pandemic has brought about. The advantages these companies have over their peers are:
- Monopolistic margins
- Highest market share in their respective industries
- Business diversification across several verticals
The table above shows the revenues that these 10 companies have generated in the last financial year and the growth rate over the last 3 years. Based on the guidance and estimates, the growth rates over the next 3 years have been calculated and it is seen that companies in FANG+ are continuing to expand and increase market share. These companies also have a very good track record of beating analyst estimates which result in outperformance. In fact, this has been a common theme during the past 3 years. All their R&D investments are very high and with lots of innovation at the core, they have been able to add new products/services and expand on the estimates.
While all of these companies are over a decade old, they continue to be at the very top when it comes to bleeding edge technological advancements. The FANG ETF offers an excellent opportunity to investors on the ASX to gain exposure to the most sophisticated and advanced companies in the world at a relatively low-cost and low risk. The FANG stocks are once again expected to outperform the benchmark indices such as the S&P 500, ASX 200, and the Nasdaq 100. We recommend investors to “Buy” and hold for the long-term.