U.S. Markets open in 2 hrs 36 mins

Is the New FANG-Themed ETF Well Timed?

Sweta Killa

The FANG stocks (Facebook FB, Amazon.com AMZN, Netflix NFLX and Alphabet GOOG) have been investors’ darlings this year, returning more than 20%. But these were beaten down lately on overvaluation concerns. The dip could offer a solid buying opportunity for these fast-growing companies (read: Tech Face Off: Amazon Versus Alphabet ETFs).

In order to capitalize on the current situation and the strong momentum in the tech space, AdvisorShares, a leading provider of actively managed ETFs, last week rolled out New Tech and Media ETF FNG. It offers exposure similar to investments in high-performing technology and media leaders as characterized by the FANG stocks acronym. This is expected to lead to their superior long-term performance.

FNG in Focus

The new fund is actively managed and focuses on companies that are driving economic growth in the modern era. Also, these can adapt to changing leadership by maintaining the ability to invest in the next generation of technology and media companies leading the equity markets.

It seeks long-term capital appreciation by investing primarily in U.S. equities, and even internationally through American depositary receipts (ADRs), of technology and technology-related companies including social media and internet retail companies within the information technology and consumer discretionary sectors. The fund employs a quantitative process to select equities with a technical analysis overlay for entering and exiting individual positions in the portfolio (read: 5 ETFs & Stocks to Ride the Tech Mania).

The ETF currently holds 30 stocks in its basket with heavy concentration on NVIDIA (NVDA), Facebook and Amazon.com that account for over 8% share each. Other firms hold no more than 5.14% of assets. Since the fund is actively managed, it comes with a high expense ratio of 0.85%.

How does it fit in today’s portfolio?

This ETF could be an intriguing choice for investors seeking concentrated exposure to the fastest growing segment of the broad stock market. Betting on high-growth technology stocks is a beneficial strategy in the current modest economic growth environment, where Trump’s pro-growth policies are being delayed.   

Additionally, the extensive adoption of new technology such as cloud computing, big data, Internet of Things, wearables, drones, virtual reality devices, and artificial intelligence will provide an edge to this ETF. The combination of other factors including improving global fundamentals, strong corporate earnings, a rising interest rate scenario, and Trump’s proposed corporate tax reform will further act as additional catalysts (read: How to Build a Winning ETF Portfolio for Second-Half 2017).

ETF Competition

There is an appetite for this fund despite a good number of choices already in the space. The ultra-popular Select Sector SPDR Technology ETF XLK has been the most successful product with AUM of over $16.1 billion and expense ratio of 0.14%. It has key holdings in some of the future tech & media leaders like Apple AAPL, Alphabet, Amazon, Facebook, Microsoft MSFT). Another ETF — First Trust Dow Jones Internet Index FDN — targeting internet stocks like Amazon, Facebook and Alphabet has amassed nearly $4.5 billion in AUM and charges 54 bps in annual fees.

Apart from this, other tech funds that could provide stiff competition are Vanguard Information Technology ETF VGT, ARK Innovation ETF ARKK and ARK Web x.0 ETF ARKW (see: all the Technology ETFs here).

Bottom Line

Given the strong fundamentals for big technology stocks, the new product from AdvisorShares could see large inflows and garner solid investor interest. Its aggressive growth strategy and disruptive innovators’ focused theme could make it outperform in the space over the long term though a high annual fee could be an issue.

Want key ETF info delivered straight to your inbox?

Zacks’ free Fund Newsletter will brief you on top news and analysis, as well as top-performing ETFs, each week. Get it free >>

Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report
Amazon.com, Inc. (AMZN) : Free Stock Analysis Report
Netflix, Inc. (NFLX) : Free Stock Analysis Report
Facebook, Inc. (FB) : Free Stock Analysis Report
Apple Inc. (AAPL) : Free Stock Analysis Report
SPDR-TECH SELS (XLK): ETF Research Reports
FT-DJ INTRNT IX (FDN): ETF Research Reports
ARK- WEB XO ETF (ARKW): ETF Research Reports
VIPERS-INFO TEC (VGT): ETF Research Reports
ADVS-NW TEC MDA (FNG): ETF Research Reports
MORG STAN EMERG (MSF): ETF Research Reports
To read this article on Zacks.com click here.
Zacks Investment Research
Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report