This article was brought to you by our friends over at ETF Securities Australia. The views and opinions expressed in this article are those of ETF Securities Australia and may not reflect the views of SelfWealth or its associates.

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Knowledge level: Beginner  Reading time: 5-6 minutes

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Quick facts

  • The FAANGs provided one-third of the Nasdaq 100’s return last financial year
  • The FANG+ index, which tracks these stocks and others, strongly outperformed the Nasdaq 100
  • The success of major indexes turned partly on how many FAANGs they featured

The Nasdaq 100 powered to a series of all-time highs last financial year, driven by the famous “FAANG” stocks. 

Source: Bloomberg, 30 June 2021

 

The FAANGs remain the engine room on the Nasdaq 100

While making up just five of the stocks in the Nasdaq 100, the FAANGs – Facebook (NASDAQ: FB), Amazon (NASDAQ: AMZN), Apple (NASDAQ: AAPL), Netflix (NASDAQ: NFLX), Alphabet (NASDAQ: GOOGL) – provided more than one-third of the index’s return during the past financial year, Bloomberg data indicates. 

Top ten Nasdaq 100 Index movers over 12 months to 30th June 2021:

Their strong contribution owes to the size of these companies. The FAANGs account for just under one-third of the weight of the Nasdaq 100, meaning the index is more sensitive to their share prices than other smaller companies. 

The growth of the FAANGs has meant that they continue to represent an increasingly large share of major share market gauges – and not just the Nasdaq 100. Yardeni Research indicates the five companies now make up 17% of the S&P 500, up from roughly 5% in July 2013. Their swelling size has meant they are having an ever-larger influence over the performance of these indexes. 

The strong performance of the FAANGs last year meant that indexes that owned more of these stocks performed better than those that owned less of them. The Nasdaq 100, for instance, outperformed the S&P 500 due partially (but not entirely) to its larger position in these stocks. 

Meanwhile, as shown below, the FANG+ index, which is made up 50% of the FAANGs, strongly outperformed the Nasdaq 100. 

Source: Bloomberg, 30 June 2021

 

Accessing FAANG stocks

With the growing clout of these companies in mind, ETF Securities launched the ETFS FANG+ ETF (ASX: FANG). It features some of the most concentrated positions in the FAANG stocks of any ETF on the ASX. 

As well as the five FAANG stocks, the fund also holds Tesla (NASDAQ: TSLA), Twitter (NYSE: TWTR), Nvidia (NASDAQ: NVDA), Alibaba (NYSE: BABA) and Baidu (NASDAQ: BIDU). It holds equally-weighted positions in each stock at every rebalance date. 

Recent analysis from Morningstar reveals that the FANG ETF was one of the best-performing thematic ETFs in Australia in the 12 months through April, 2021, with a one-year return of 61.5%.

 

Valuations: are the FAANGs cheap?

According to Bloomberg data, which compiles estimates from Wall Street analysts, profit growth of the FAANGs is set to exceed the broader Nasdaq 100. Earnings Per Share (EPS) Growth for the Nasdaq 100 through to December 2022 is expected to be 12% compared with 16.2% for the FAANGs.

The addition of Twitter, Tesla, Nvidia, Alibaba, Baidu, the other five stocks in the FANG ETF, increases this forecast significantly to an estimated 21.1% growth in EPS across the same timeline.

On valuations, the Price-to-Earnings (PE) ratio of the Nasdaq 100 Index is 33.7x, while the FANG+ Index sits only slightly higher at 38.3x, despite a return of 36% over the Nasdaq 100 last financial year. 

Interestingly, a number of the FANG+ names screen as ‘cheap’ according to Morningstar analysis, with Amazon, Google and Facebook all posting a price-to-fair value ratio under 1. This metric is often used as a gauge to identify stocks that may be trading under their fair value. Furthermore, Morningstar categorises these names as having a ‘Wide Moat’, indicating it believes these companies have strong competitive advantages. 

Source: Morningstar, 25 June 2021

 

How to invest in the FAANGs, the engine of the Nasdaq 100 

ETFS FANG+ ETF

ASX Code: FANG

MER: 0.35% p.a.

  • Offers investors access to the FAANGs as well as Tesla, Nvidia, Twitter Alibaba and Baidu, via an equally-weighted portfolio
  • The index offers investors exposure to highly-traded next-generation technology and tech-enabled companies
  • FANG provides a concentrated exposure to global innovation leaders
  • A variety of themes are unlocked within the fund, including: e-marketing, e-commerce, next-generation cars, e-entertainment and cloud-computing. 

 

For more information on the ETFS FANG+ ETF (ASX: FANG), please contact ETF Securities.

To invest in ASX-listed ETFs or any other ASX and US-listed securities, join SelfWealth today for flat-fee $9.50 brokerage and no other account fees or commissions!

 

ETF Securities Australia Client Services

Phone: +61 2 8311 3488

Email: infoau@etfsecurities.com.au

Website: www.etfsecurities.com.au        

 

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