The US stock market is home to some of the biggest companies in the world, many of whom are global innovation leaders. As investors increasingly look towards innovation as a way for a company to underpin future growth opportunities, it is little surprise that a select band of stocks have earned favour over the years.
These shares grew to prominence as the ‘FAANG’ stocks, bundling the likes of Facebook (FB), Apple (APPL), Amazon (AMZN), Netflix (NFLX) and Alphabet (GOOGL). Now, however, this group of technology favourites consists of numerous other companies that are pioneers when it comes to innovation.
As these companies offer lucrative exposure to some of the most prominent growth tailwinds in the market, their popularity has spurred the creation of the NYSE FANG+ Index, which seeks to capture their performance, as well as that of companies like Alibaba (BABA), Baidu (BIDU), NVIDIA Corporation (NVDA), Tesla (TSLA) and Twitter (TWTR).
Investing in FANG stocks
While Australian investors have long had a difficult time investing in US stocks due to accessibility issues and high international brokerage costs, the advent of a number of ETFs seeks to address this shortfall.
Many ETFs utilise a broad index-based approach, hereby omitting certain innovative pioneers like Tesla and Alibaba. Few options exist for direct and concentrated exposure to FANG stocks, the companies we know and use everyday. In fact, six of the FANG stocks fall within the top 10 most-popular international investments for Australians.
In light of this trend, ETF Securities has introduced a new ETF, the ETFS FANG+ ETF (ASX: FANG). This index-based ETF is designed to provide exposure to these highly sought-after companies that combined, represent a valuation that is more than three times the S&P/ASX 200.
‘FANG’ invests in highly traded high growth companies representing top innovators across today’s technology and technology-driven companies, such as those in media or consumer goods.
The ‘FANG’ ETF also represents the first Australian ETF to replicate the NYSE FANG+ Index, which, as shown below, has achieved a 31.3% annualized total return in the five years to 31 December 2019, as compared to 20.5% for the NASDAQ-100®, 15.1% for the S&P 500® and 9.0% for the S&P/ASX200 Index.
Source: Bloomberg, as at 31 December 2019
How does the ETFS FANG+ ETF work?
The ETFS FANG+ ETF is listed on the ASX and trades under the ticker ‘FANG’. Investors may purchase or sell units in the ETF as they would with any other stock, through their online trading account. Before you make any investment decision, please consult the relevant PDS.
An investment in ‘FANG’ is designed to provide intelligent access to global innovation leaders. This means the ETF is structured as an investment in a diverse basket of stocks, matching the NYSE FANG+ Index that contains a minimum of 10 companies. Half of these companies are from the technology sector, while 30% and 20% come from the consumer cyclical and communication services sectors respectively.
This basket of stocks is equally-weighted and rebalanced on a quarterly basis. As the ETF targets transparent investment in highly liquid stocks, there is a requirement for each company to have a minimum market capitalisation of US$5bn and a 6 month average daily turnover of at least US$50m. Distributions will be paid semi-annually.
What exposure does ‘FANG’ offer?
As ‘FANG’ represents 9% of the MSCI World Index and 17% of the S&P 500, the index-based ETF provides investors with simple, low-cost access to top global innovation leaders listed on major US stock exchanges via the one instrument.
Not only does the ETF provide investors with exposure to high-growth tech companies, but it also targets tech-aligned companies from unique sectors and industries that Australian investors would otherwise have limited means to access through the ASX.
In addition, each of the companies provide exposure to megatrend themes such as cloud storage and computing, digitisation or even electric vehicles. The last is an industry headlined by Tesla and tipped for a compounded annual growth rate of 19.2% from 2019 to 2030 according to Market Industry Reports. This basket of stocks provides exposure to international growth through companies with globally diversiﬁed customer bases and revenue streams, positioned for the future.
What’s more, investors have an opportunity to invest in highly liquid companies that they know and already use, and which play an important role in driving the NASDAQ 100 and broader US economy. FANG stocks are used in some way by most of the world. Google for example, has 93% share of the search engine market, while 90% of Fortune 500 companies are using Amazon.
FANG companies have ultimately had a transformational role in society, and based on their performance in years gone by, it appears many investors expect them to continue acting as leading innovation companies that will shape the world around us.
Where can I find more information?
For more information, including the PDS and up-to-date fund information, please visit etfsecurities.com.au/product/fang. Alternatively, for any investment questions, please contact infoAU@etfsecurities.com.au.
The issuer of units in ETFS FANG + ETF (ARSN: 628 036 635) is the responsible entity of the Fund, being ETFS Management (AUS) Limited (AFSL 466778). The PDS for the Fund contains all of the details of the offer of units in the Fund. Any investment should only be made after review of the product disclosure statement which should be considered by any potential investor including any risks identified therein.
Investments in any product issued by ETFS are subject to investment risk, including possible delays in repayment and loss of income and principal invested. Neither ETFS, ETFS Capital Limited nor any other member of the ETFS Capital Group nor any of their respective directors, employees or agents guarantees the performance of any products issued by ETFS or the repayment of capital or any particular rate of return therefrom.
The value or return of an investment will fluctuate and an investor may lose some or all of their investment. Past performance is not a reliable indicator of future performance.
Source ICE Data Indices, LLC, is used with permission. “NYSE® FANG+TM” is a service/trade mark of ICE Data Indices, LLC or its affiliates and has been licensed, along with the FANG+TM Index (“Index”) for use by [name of LICENSEE] in connection with ETFS FANG+ ETF (FANG) (the “Product”). Neither ETFS Management (AUS) Limited, ETFS FANG+ ETF (the “Trust”) nor the Product, as applicable, is sponsored, endorsed, sold or promoted by ICE Data Indices, LLC, its affiliates or its Third Party Suppliers (“ICE Data and its Suppliers”). ICE Data and its Suppliers make no representations or warranties regarding the advisability of investing in securities generally, in the Product particularly, the Trust or the ability of the Index to track general market performance. Past performance of an Index is not an indicator of or a guarantee of future results.
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