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.
Before investing in any ETFs, you should consult the respective product’s Product Disclosure Statement, which will be available on the fund’s website.
Knowledge level: Beginner Reading time: 5-6 minutes
- 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.
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.
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.
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
General Advice Warning
This document is issued by ETFS Management (AUS) Limited (“ETFS”) (Australian Financial Services Licence Number 466778) for publication by SelfWealth Ltd ACN 52 154 324 428 (“SelfWealth”) (Australian Financial Services Licence Number 421789. This document may not be reproduced, distributed or published by any recipient for any purpose. Under no circumstances is this document to be used or considered as an offer to sell, or a solicitation of an offer to buy, any securities, investments or other financial instruments.
The information provided in this document is general in nature only and does not take into account your personal objectives, financial situations or needs. Before acting on any information in this document, you should consider the appropriateness of the information having regard to your objectives, financial situation or needs and consider seeking independent financial, legal, tax and other relevant advice having regard to your particular circumstances. Any investment decision should only be made after obtaining and considering the relevant product disclosure statement.
This document has been prepared by ETFS from sources which ETFS believes to be correct. However, none of ETFS, ETFS Capital Limited, nor any other member of the ETFS Capital Group, nor any of their respective directors, employees or agents make any representation or warranty as to, or assume any responsibility for the accuracy or completeness of, or any errors or omissions in, any information or statement of opinion contained in this document or in any accompanying, previous or subsequent material or presentation. To the maximum extent permitted by law, ETFS and each of those persons disclaim all any responsibility or liability for any loss or damage which may be suffered by any person relying upon any information contained in, or any omissions from, this document.
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 investors may lose some or all of their investment. Past performance is not an indication of future performance. Source ICE Data Indices, LLC, is used with permission. “FANG+ SM/Ò” is a service/ trademark of ICE Data Indices, LLC or its affiliates and has been licenced, along with the FANG+ Index (“Index”) for use by ETFS Management (AUS) Limited (“ETFS”) in connection with ETFS FANG+ ETF (the “Product”). Neither ETFS 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.
ICE DATA AND ITS SUPPLIERS DISCLAIM ANY AND ALL WARRANTIES AND REPRESENTATIONS, EXPRESS AND/OR IMPLIED, INCLUDING ANY WARRANTIES OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE OR USE, INCLUDING THE INDICES, INDEX DATA AND ANY INFORMATION INCLUDED IN, RELATED TO, OR DERIVED THEREFROM (“INDEX DATA”). ICE DATA AND ITS SUPPLIERS SHALL NOT BE SUBJECT TO ANY DAMAGES OR LIABILITY WITH RESPECT TO THE ADEQUACY, ACCURACY, TIMELINESS OR COMPLETENESS OF THE INDICES AND THE INDEX DATA, WHICH ARE PROVIDED ON AN “AS IS” BASIS AND YOUR USE IS AT YOUR OWN RISK.