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The FAANGs remain the engine room of the Nasdaq-100

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Quick Facts

  • The FANG+ stocks provided more than half of the Nasdaq’s returns in 2021

  • The FANG+ Index, which tracks these stocks, performed strongly

  • The success of major indexes in recent years has turned partly on how many FANG+ stocks they own

The Nasdaq 100 powered to all-time highs last year, driven by the famous “FANG+” stocks.

Nasdaq Total Returns

nasdaq_total_returns_chart_cdec06805a.pngSource: Morningstar. 9 July 2021

While making up just nine of the 100 stocks in the Nasdaq, the ten FANG+ stocks – Facebook, Amazon, Apple, Nvidia, Netflix, Google, Microsoft, Tesla, Baidu – provided almost two-thirds of the index’s return in 2021, Bloomberg data indicates.

Top 10 Nasdaq-100 Index movers over 12 months to 31st December 2021

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Source: Bloomberg. Data from 1 January 2021 to 31 December 2021.

Their strong performance has meant these companies are becoming increasingly influential in determining the performance of the Nasdaq 100. Nine out of the ten FANG+ stocks are in the Nasdaq 100 (Alibaba is the exception). And these nine stocks now take over half of the weight of the Nasdaq, as of January 2022. This means the Nasdaq 100 index is more sensitive than ever to their share prices.

The growth of the FANG+ has meant that they continue to take an increasingly large share of other share market gauges too. The eight FANG+ companies included in the S&P 500 (Alibaba and Baidu are not in the S&P 500) take 26% of its weight as of January 2022. This is up from roughly 5% in July 2013, and up from 17% in July 2021. With the sharp sudden jump owing partly to Tesla’s index inclusion in 2021.

Their strong performance over the years has meant that indexes that owned more of the FANG+ have performed better than those that own less of them. The Nasdaq, for instance, outperformed the S&P 500 due partially to its larger position in these stocks.

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Source: Morningstar, 1 January 2022

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 FANG+ stocks of any ETF on the ASX.

It takes equally weighted positions at each at rebalance.

Valuations: are the FANG+ cheap?

According to Bloomberg data, which compiles estimates from Wall St analysts, the profit growth of the FANG+ is set to be above the Nasdaq 100 over the next 3 – 5 years. The profit growth estimates (Bloomberg BEST LTG EPS Growth) for the Nasdaq is 14% compared with 38% for the FANG+ Index.

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Source: Morningstar, 31 January 2022

And FANG earnings do not look especially expensive either. On valuations, the forward PE ratio of the Nasdaq 100 Index is 26.4., while the FANG+ Index sits only slightly higher at 27.9, as of 1 February 2022 according to Bloomberg.

Interestingly, most the FANG+ stocks are cheap according to Morningstar (table above), with almost stocks posting a price to fair value ratio under 1, indicating that these names are trading under their fair value. Alibaba looks especially cheap, with Morningstar’s analysts describing it as “materially undervalued” for a “wide moat” stock.

How to invest in the FANG+, the engine room of the Nasdaq-100

ETFS FANG+ ETF | ASX Code: FANG

MER: 0.35% p.a.

  • Offers investors access to the 10 FANG+ stocks: Alibaba, Apple, Alphabet, Amazon, Baidu, Meta Platforms, Microsoft, Netflix, Nvidia, Tesla, 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.