The AdvisorShares New Tech and Media ETF (NYSEARCA:FNG) recently debuted as an actively managed equity fund, and is a clear sign that we’ve hit peak “FANG.”
The acronym used to describe a handful of high-growth stocks including Facebook Inc (NASDAQ:FB), Amazon.com, Inc. (NASDAQ:AMZN), Netflix, Inc. (NASDAQ:NFLX) and Google parent Alphabet Inc (NASDAQ:GOOGL). It’s a way for market watchers and CNBC aficionados to easily reference these big winners without overtaxing their jaw muscles.
All four of these household names have gained more than 30% over the last 52-weeks. Their momentum has become so unstoppable that someone felt it would be a good idea to create an ETF geared specifically toward this theme.
The AdvisorShares New Tech and Media ETF adopts an aggressive growth strategy in the tech space, heavily concentrated in a portfolio of 28 stocks that were selected and weighted by Sabretooth Advisors, LLC. The original FANG stocks are all represented near the top of the group, with several other strong contenders like Nvidia Corporation (NASDAQ:NVDA) and Alibaba Group Holding Ltd (NYSE:BABA) rounding out the leaders.
The marketing material surrounding FNG is heavily influenced by words like innovation, leadership, disruption and flexibility. All phrases have likely been used in one form or another to describe the business models of its holdings. You won’t find any beaten-down value plays with 100-year track records in here.
FNG has an instant edge in that its portfolio comes out of the gates with some of the best stocks in the current market. That may also be its downfall as well. With no index guidelines or other rules-based criteria, the adviser is simply chasing whatever is hot in the hope that it continues to run indefinitely. Like any sector or thematic ETF, it will almost certainly experience periods of sharp alpha (outperformance) and other cycles of weak relative returns. Such is the life of an active stock picker.
At the sector level, FNG will likely be compared to the Technology Select Sector SPDR (NYSEARCA:XLK). This ETF represents the large-cap technology segment within the S&P 500 Index.
An even closer peer comparison is likely to be drawn from the First Trust Dow Jones Internet Index Fund (NYSEARCA:FDN). This passive index ETF owns stocks that comprise more than 50% of their sales from the internet. It’s no surprise that Amazon, Facebook and Alphabet are all found in the top holdings of FDN. Until recently, it was just about the most FANG-like ETF you could possibly own. That’s one of the reasons it has $4.6 billion in assets under management and allocates to just 42 stocks.
Performance has been that good.
The two questions potential investors should ask themselves are:
- Does the FDN strategy have merit?
- Where does it fit within my portfolio?
Based solely on the success of FDN, there clearly is a substantial pool of assets that is committed to chasing these technology powerhouses. Sector and industry-focused funds are no strangers to the ebb and flow of money that comes with varying market trends. The hardest part for FNG will be to differentiate itself enough to lure money away from the likes of FDN and other low-cost competitors. Often, ETF investors just stick with what they already own because of the track record and liquidity of the market share leader.