Mirae Asset Mutual Fund has launched an international ETF with a narrow index of 10 stocks called FANG+ ETF. NFO deadline is April 30th.
What is the FANG+ Index?
The FANG+ Index was created to track the equal-weighted performance of FAANG stocks – five more actively traded technology companies including Alibaba, Tesla, etc.
Why has it been introduced now?
For the past 10 years, FAANG shares have risen strongly as they lead their respective sectors. The technology sector often exhibits a “winner takes all” type of business model where only a few of the many companies turn out to be winners.
FAANG shares have given excellent returns in comparison to S&P500 over the past 6 years. Four out of 5 companies have a very flexible business model and consistent growth track record. Valuations for better future prospects were high, but not excessive in the last 5-6 years.
The FANG+ Index is basically consolidating these winners into an equal weighted portfolio to meet the investor demand for such stocks.
After seeing the momentum in these stocks, the FANG+ is formed on the back side. We find this index building strategy very speculative as it identifies only those stocks which are in infancy and constitute an index.
We believe broad-based technology/international index fund ETFs make more sense than focused winners.
We’re more optimistic about companies like Facebook, Microsoft, Amazon, or Google versus Netflix, Tesla, Twitter, and Nvidia. The latter names more risk than the former in terms of business model or unconventional method of valuation.
What are the other features of this ETF or international ETF?
- Less cost: Since it is an index ETF (NYSE FANG+ Index), it is a very cheap way to invest in the US. Mirae AMC only has the expense ratio.
- currency depreciation: Indian investors also enjoy returns from currency depreciation as most international funds do not have currency hedging. Over the past 20 years, it has averaged about 3% per year.
- High Taxation Vs Indian EquityForeign debt funds are taxed like debt funds in India. Since equity funds must be held for more than 3 years, the tax on international equities after 3 years is 20% on capital gains with indexation.
Should you invest in Mirae Asset NYSE FANG+ ETF?
we recommend avoid Mirae Asset on NYSE FANG+, because adding this product will add wealth to your portfolio without adding significant diversification. We recommend choosing the S&P500 Index or the Nasdaq 100 over a focused and relatively new index called the NYSE FANG+
US market prospects:
we shared with our customers October’20 The valuation in the US for choosing the SIP route for international index ETFs is higher than other markets including India.
Growth prospects for the US market over the next decade are likely to be slim as i) the market is undervalued at a lower benchmark rate ii) higher valuations at normalized margins, etc. As a result, US market return* from current prices may not exceed the Indian investor’s hurdle rate for equity returns.
*Observation only for index funds, not for individual stocks. Assumption of return for the next 10 year period. The US market remains expensive as it has adjusted to lower interest rates in the economy.
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