ETF Securities’ new product ETFS FANG+ ETF tracks an index created by ICE Data Indices (Intercontinental Exchange), for which the returns over the last 12 months were 45%. Its fee is 0.35%.
This ETF is unique in that it takes an equal weight approach to a highly concentrated and hand-picked list of ten companies within the tech space. So it’s almost a hybrid passive and active investment strategy as the ten stocks are not ordered by market capitalisation.
“Do your due diligence to make sure you actually want to be exposed to these businesses,” Pete Pennicott, a director of financial advice firm Pekada, says.
“Also be sure the ETF’s investment strategy aligns with your investment preferences. You want to understand how your money’s invested, so you can confidently build around this with your other investments,” he adds.
Canberra-based financial planner Michael Miller has a similar view: “It’s a high-risk ETF because it only tracks 10 companies. As a targeted investment in high-profile names in the technology sector, it may suit investors who want to add that to their portfolio, to the exclusion of broader technology indices such as the Nasdaq 100.”
Miller notes the fund has a degree of diversity in that each of the companies involved in the index do not do exactly the same thing. “Some are involved in manufacturing the tech devices we use, while others are delivering content to those devices. I expect that general sentiment about technology would drive changes in value, in addition to the specific results of each of those 10 individual companies.”
Pennicott says it's no surprise ETF issuers are releasing products designed to give investors exposure to tech stocks given this part of the market’s strong gains over the last 12 months. But he cautions against chasing retrospective returns as past performance is no guarantee of future performance.
“Risks are also amplified due to the very concentrated list of 10 companies in the fund held at the same weighting. So you lose the diversification benefits provided by broader index strategies or active management. Given the lack of diversification, it wouldn't be suitable for your only international equities exposure. It needs to be blended with other global equity investments for breadth.”
Nevertheless, Pennicott says the fund may be useful for investors who were planning to buy these shares anyway and want the simplicity of a single trade. It might also be good for people with smaller amounts to invest.
“But the cost of this simplicity may add up over time with the compounding effect of the ongoing management fee each year. Without knowing the ETF’s future rebalancing strategy, investors may be better off buying shares in the ten companies in equal weighting directly and save on the ongoing costs. If you plan to buy and hold, the initial investment of 10 brokerage fees may prove a worthwhile investment as the cost is a one-off.”
Kyle Frost, an independent financial adviser with Millennial Independent Advice, notes there really is not anything similar to FANG+ on ASX, other than BetaShares’ NASDAQ 100 ETF, which has a 0.48% management fee.
“Although it’s more expensive than a diversified global alternatives ETF, FANG+ is not overly expensive. It may be appropriate for someone who is particularly bullish on technology and wants concentrated exposure,” Frost says.
“Keep in mind the equal weighting and quarterly rebalancing will likely add transaction and tax costs as the better performing constituents will have to be sold to buy the worse performing constituents. This is likely to create capital gains which will be passed onto investors in distributions and taxed as per their individual situation,” he adds.