The FAANGs provided one-third of the Nasdaq’s returns last financial year
The FANG+ index, which tracks these stocks and others, strongly outperformed the Nasdaq
The success of major indexes turned partly on how many FAANGs they had
The Nasdaq 100 powered to all-time highs last year, driven by the famous “FAANG” stocks.
Nasdaq Total Returns
Source: Morningstar, 9 July 2021
While making up just five of the 100 stocks in the Nasdaq, the FAANGs – Facebook, Amazon, Apple, Netflix, Google – provided more than one-third of the index’s return during the past financial year, Bloomberg data indicates.
Top 10 Nasdaq 100 Index movers over 12 months to 30th June 2021
Source: Bloomberg, GICS Sectors, data as of 31 March 2021. All performance numbers are in USD.
Their strong contribution owes to the size of these companies. The FAANGs take 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 take an increasingly large share of major share market gauges – and not just the Nasdaq. The five companies now take up 17% of the S&P 500, up from roughly 5% in July 2013, Yardeni Research indicates, their swelling size has meant they are having an ever-larger influence over the performance of these indexes.
Their strong performance last year meant that indexes that owned more of the FAANGs performed better than those that owned less of them. The Nasdaq, for instance, outperformed the S&P 500 due partially (but not entirely) to its larger position in these stocks. While the FANG+ index – which is made up 50% of the FAANGs – strongly outperformed the Nasdaq.
Source: Morningstar, 9 July 2021
With the growing clout of these companies in mind, ETF Securities launched the ETFS FANG+ ETF (FANG). It takes some of the most concentrated positions in the FAANG stocks of any ETF on the ASX.
As well as the five FAANGs, the fund also holds Tesla, Twitter, Nvidia, Alibaba and Baidu—taking equally-weighted positions in each at rebalance. FANG was one of the best performing ETFs in Australia, an analysis from Morningstar reveals.
Valuations: are the FAANGs cheap?
According to Bloomberg data which compiles estimates from Wall St analysts, the profit growth of the FAANGs is set to be above the Nasdaq 100. The profit growth estimates (EPS Growth) to Dec 2022 for the Nasdaq is 12% compared with 16.2% for the FAANGs. The addition of Twitter, Tesla, Nvidia, Alibaba, Baidu – the other five stocks in our FANG ETF –makes things look even better and pushes this average out to 21.1%.
Source: Morningstar, 25 June 2021
On valuations, the 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 last financial year.
Interestingly, a number of the FANG+ names screen as cheap according to Morningstar, with Amazon, Google and Facebook all posting a price to fair value ratio under 1, indicating that these names are trading under their fair value. Furthermore, Morningstar categorize these names as having a Wide Moat, indicating it believes these companies have strong competitive advantages.
How to invest in the FAANGs, the engine room 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 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.