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Mirae Asset NYSE FANG+ ETF & Fund: Should you buy?

Mirae Asset Mutual Fund has launched NYSE FANG+ Index ETF to participate in top performing new age businesses based out in US. It is very narrow portfolio of winners picked in hindsight. If you wish to add a fund for long term, a broad based index or fund like S&P500/Nasdaq 100 brings more to the table by adding right diversification versus NYSE FANG+

Table of Content:

  1. What is a FANG+ Index?
  2. Why is it introduced now?
  3. What are other characteristics of this ETF or international ETFs?
  4. Should you invest in Mirae Asset NYSE FANG+ ETF?

Mirae Asset Mutual Fund has launched an international ETF with a narrow index of 10 stocks called FANG+ ETF. Deadline for NFO is April 30th.

What is a FANG+ Index?

FANG+ Index was created to track equal-weight performance of FAANG stocks -additional five more actively traded technology companies including Alibaba, Tesla, etc.

Why is it introduced now?

For last 10 years FAANG stocks have gone from strength to strength as they spearhead their respective sectors. Technology sector often exhibits “Winner takes all” kind of business model where out of multiple companies only a few turn out winners.

Source: TradingView.com

FAANG stocks have clocked phenomenal returns in last 6 years versus S&P500. Four out of 5 companies have very resilient business model and consistent growth track record. Valuation were high, for better future prospects, but were not excessive in last 5-6 years.

FANG+ index is basically compiling these winners into an Equal Weight portfolio to cater investors’ demand for such stocks.

FANG+ is a constructed in hindsight, after seeing momentum in these stocks. We find this index construction strategy very speculative as it simply identified stocks that are in fancy and formed an index.

We believe a broader based technology/international index fund ETF makes more sense than concentrated winners chosen in hindsight.

We are more optimistic about companies like Facebook, Microsoft, Amazon or Google versus Netflix, Tesla, Twitter and Nvidia. Latter names have higher risk than former in terms of business model or unconventional method of valuation.

What are other characteristics of this ETF or international ETFs?

  • Low cost: Since it is an index ETF (NYSE FANG+ Index), it is a very cheap way to invest in US. Just the expense ratio of Mirae AMC.
  • Currency depreciation: Indian investors also enjoy returns from currency depreciation as currency is not hedged in most international funds. In last 20 years, it has averaged around 3% p.a.
  • High taxation versus Indian Equity: Foreign debt funds are taxed like debt funds in India. Since Equity funds must be held longer than 3 years, taxation on international equity after 3 years is 20% on capital gains with indexation.

Should you invest in Mirae Asset NYSE FANG+ ETF?

We recommend Avoid on Mirae Asset NYSE FANG+, as adding this product will increase funds in your portfolio without adding significant diversification. We recommend to choose S&P500 index or Nasdaq 100 over of a concentrated & relatively new index called NYSE FANG+

US Market prospects:

We shared with our subscribers in Oct’20 to opt for SIP route to International Index ETF as valuation in US are high versus other markets including India.

US market upside potential over next decade is likely to be lower due to i) market has be valued w.r.t. lower benchmark rate ii) higher valuation on normalized margins, etc. As a result, US market return* from current prices may not cross Indian investors’ hurdle rate for equity return.

*Observation only for Index Funds, not individual stocks. Return assumption for next 10 year period. US market has stayed expensive as it adjusted to lower rate of interest in the economy.

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Ketan Gujarathi

Manager - Equity Research; Based in Pune, a Total of 7 years of work experience ranging from equity analysis, credit rating and banking. MBA in Finance and a Bachelor's degree in Engineering. Passionate about studying companies. Likes reading history & business books. Spends free time with friends and family.

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