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Mirae Asset FANG+ ETF: Will the Momentum Continue?

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By: Tavaga Research

Mirae Assets, a major Asset Management Company (AMC) in the Asian Financial Markets, is coming out with a New Fund Offer (NFO) in India for its FANG+ ETF, going live on 19th April 2021. The ETF will allow Indian investors to venture into the top companies of Silicon Valley and provides them with an opportunity to invest internationally.

What is an NFO?

A New Fund Offer, or NFO, is an offer given by AMCs for the first-time subscription to their new schemes, like Mutual Fund, ETF or Fund of Fund Schemes.

For the Mirae Asset FANG+ ETF, the NFO dates are from 19th April to 30th April. It is an open-ended fund, meaning investors can still buy or sell the fund even after the NFO period gets over. The scheme reopens for continuous sale and purchase from 7th May 2021.

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What is Mirae Asset NYSE FANG+ ETF?

Now the main question, what is the FANG+ ETF? The FANG+ ETF is an Exchange Traded Fund that will track the performance of the NYSE FANG+ Index. The ETF will be taxed like a debt fund which means slab rate taxations for holding periods less than 3 years and 20% tax rate for capital gains on holding period more than 3 years because of the indexation benefits.

The FANG+ Index is comprised of 10 highly traded technology growth stocks of the New York Stock Exchange (NYSE). The index is equally weighted and consists of the 5 core FANG stocks, Facebook, Apple, Amazon, Netflix, and Alphabet (Parent company of Google), and 5 more high growth stocks namely Tesla, Baidu, Alibaba, Twitter, and NVIDIA. All the stocks are from the tech sector and provide high exposure to both the risks and returns of the tech sector of the NYSE.  

The FANG+ Index is highly correlated to the performance of the Tech industry and has provided returns in multiples since its induction in Sept 2017. During the Covid-19 Pandemic, the FANG stocks rose exponentially as the importance and the future of technology came into the limelight.

Pros of FANG+ ETF:

Cons of FANG+ ETF:

  • Very high-Risk investment
  • Highly concentrated and undiversified
  • Constituent stocks currently trading at a premium and high P/E multiples
  • High STGC for Investors from topmost tax bracket
FANG+ 3 year Performance
Source: Google Finance, Tavaga Research

Since September 2017, the index has given a 200%+ return and has been one of the best performing indices in the world, especially during a pandemic.

Performance of FANG+ v/s Other Indices

FANG+ v/s Nasdaq 100

Nasdaq 100 comprises the largest 102 non-financial companies on the NASDAQ stock index in the USA. The NASDAQ index gave a return of 208% in the last 5 years v/s the 244% return by FANG+ in the past 3 and half years.

FANG+ v/s NASDAQ 100
Source: Google Finance, Tavaga Research

FANG+ v/s S&P500

S&P 500 is an even broader index that takes into account the performance of the largest 500 companies by market cap listed on the stock exchanges across the US. It is well-diversified and hence offers comparatively fewer returns than the FANG+ concentrated IT index. The S&P returns were only 99% over the past 5 years even after touching record highs in 2021.

FANG+ v/s S&P
Source: Google Finance, Tavaga Research

FANG+ v/s NIFTY IT

Nifty IT index comprises of the 10 biggest tech stocks listed on the National Stock Exchange (NSE). The FANG+ index outperformed the NIFTY IT index also as the returns for NIFTY IT was 129% over the past 5 years.

FANG+ v/s Nifty IT
Source: Google Finance, Tavaga Research

Across all the snippets we can see that the FANG+ index has outperformed almost every index we can think of and that’s because of the boom in the IT sector and the increased dependence of the world economy on growing technology. The Covid-19 pandemic gave a boost to FANG+ in terms of earnings growth and better future prospects. But, is this the right time to subscribe to the Mirae Asset FANG+ ETF?

Mirae FANG+ ETF and the Motilal Oswal NASDAQ 100 ETF

The Motilal Oswal NASDAQ 100 ETF mirrors the performance of the NASDAQ 100 index with 100% of the AUM invested in the NASDAQ stocks and has generated an annualized return of 28% in the past 5 years. With an expense ratio of 0.5%, the NASDAQ ETF has a fund size of Rs. 3,203 cr.

Mirae FANG+ v/s Motilal Oswal NASDAQ 100
Source: Google Finance, Tavaga Research

Both the FANG+ index and the Motilal Oswal NASDAQ 100 ETF have given similar returns. The difference is that the NASDAQ ETF is broader and more diversified than the FANG+ and hence offers some sort of diversification benefit to the investors in terms of reduced risk. While both the ETFs come under the high-risk category, FANG+ concentration in just IT stocks makes it riskier than the NASDAQ index and is more appropriate for a risk seeker.

Should Investors Subscribe to the Mirae Asset FANG+ ETF NFO?

The FANG+ index has delivered a 47% annualized growth every year since its inception, which outruns the returns offered by NASDAQ or NIFTY IT during a similar time horizon. But past results are backward-looking and are no guarantee of future performance of the companies in the index. Hence, a more cautious approach is advised for investing in such a fund.

Although tech is the future, the tech companies are currently trading at premium valuations with P/E ratios higher than their long-run averages. The majority of FANG+ stocks touched an all-time high in FY21. The chances of the stocks correcting to lower levels are not out of sight. Biden’s administration is also discussing a higher tax rate to be collected from the tech companies which could lead to a reduction in earnings.

Hence, if you want to subscribe to the Mirae Asset FANG+ ETF, we have two pieces of advice for you. One, invest in SIPs and have an investment horizon of around 8-10 years for decent returns since markets can see a correction when Covid infused liquidity withdraws from the system. Two, don’t put all your money in the FANG+ ETF since it’s only tech stocks and there are little to no diversification benefits. Allocate some of your wealth to the FANG+ ETF while maintaining an overall diversified portfolio by investing in S&P 500 index fund and other Indian equity ETFs.

Disclaimer:The above write-up is meant for informational and educational purposes only. Kindly do not consider this as a recommendation to subscribe to the IPO / to buy or sell the stock.

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