Facebook, Amazon, Netflix and Google: With COVID-19 driving people home and onto social media and streaming platforms, stock market investors have flocked to put their money with these big technology giants.
What if you could invest in some of the biggest technology giants in one go?
Mirae Asset Management recently launched two new FANG+ funds. One is an exchange-traded fund that tracks the NYSE FANG+ total return index, while the other is an ETF fund of funds, essentially a mutual fund that will invest in Mirae’s FANG+ ETF.
The FANG+ index on the New York Stock Exchange comprises some of the global tech leaders like Amazon, Alphabet (the parent company of Google), Apple, Tesla, Netflix, Facebook and Twitter. Baidu, Nvidia and Alibaba make up for the remaining stocks.
Undoubtedly, these are some of the market leaders in technology, media and internet space and will benefit from the surge in technology adoption and will drive technological changes in the future. As Swarup Mohanty, CEO of Mirae Asset Investment Managers (India) said, investing in these new FANG+ NFOs of Mirae AMC, investors will be able to participate in this global growth story.
“There are a few global companies that do not just follow future megatrends but rather drive the change with their constant innovations. They have not just shaped our society; they have provided good returns to investors for years together,” he said.
Investing in these funds will also provide people to invest in global markets and thus diversify their investment basket. Also, considering that it's an exchange-traded fund, the costs will be extremely low too. The new fund offer is open till May 3 and the minimum initial investment in both the funds will be Rs 5,000 and multiples of Re 1 thereafter. Since these are open-ended schemes, one could buy or sell these funds after the NFO period is over too, just like any other mutual fund.
However, there are a few important points to consider before you rush to invest in these funds. Do note that the FANG+ index comprises just ten stocks. So, there is a big concentration risk. Your money will be going towards a select few companies and even though they are market leaders in their segments, they are not risk proof.
For instance, Alibaba’s founder Jack Ma is under the regulatory scanner in China, Amazon is under scrutiny for labour practices in the US, and Facebook users continue to grapple with the privacy concerns they face on the platform.
“You are getting foreign exposure with just ten stocks. Tomorrow if things were to backfire and there are policy or regulatory changes that impact even one of these ten companies, then the returns will suffer,” pointed Anant Ladha, a certified financial planner and founder of Invest Aaj for Kal.
Concentration risk apart, another thing investors should note is the valuation risk. In the last few months, US markets have rallied sharply, and many of these stocks are no longer cheap. For instance, while the S&P 500 index trades at 32.5 times its trailing earnings, the FANG+ index has a price to equity ratio of 54 times, Vidya Bala, co-founder of Primeinvestor.in, points in her review.
Having said that the FANG+ stocks have delivered very high returns. For instance, the FANG+ index has delivered returns of 46.8 per cent compounded annual growth over five years in rupee terms. In contrast, the wider Nasdaq 100 index has returned 28.1 per cent and the NSE Nifty50 17.3 per cent CAGR over the same period.
Bala of Primeinvestor says that the performance of FANG+ index can’t be ignored and that the theme holds potential is undeniable. However, the index was launched only in 2017 and how long the theme will last in the way it has is too early to assess.
Investing in the US and other global markets is a growing trend in India in the last year. For investors who are willing to take a higher risk—the concentration risk as well as the valuation premium—the FANG+ index has delivered. But, for normal investors, especially those who have recently begun or are looking to diversify their investment into international markets, investing in more diversified funds could be a better option, say analysts.
For instance, passive US index funds work better with lower risks, said Bala.
Several Indian mutual fund houses now offer funds that invest in global markets. There are Nasdaq as well as S&P 500 index funds, which are more diversified and low cost. Several active funds investing in US and other markets are also on offer by a few fund houses.
“The new funds are for aggressive investors. For normal investors, I would prefer a diversified multi-cap fund over this concentrated portfolio,” Ladha said.