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How To Invest In FANG ETFs

How To Invest In FANG ETFs

Posted:
Topic: FAANG , GAFAM , FATANG
Publication Type: ETP and Industry
How To Invest In FANG ETFs

How To Invest In FANG ETFs 

Investors and hedge fund managers alike diversify their portfolios by investing in FANG ETFs. What are FANG stocks, and why are they so popular? We’ll examine how FANG stocks perform and why these stocks are lucrative. 

Whether you prefer long-term or short-term investment strategies, FANG benefits both. We’ll explain why these industry leaders are worth your investment.

What Are FANG ETFs?

Jim Cramer, the host of CNBC’s Mad Money, coined the term FANG in 2013 by asking the question: Does your portfolio have FANGs? FANG is an acronym for four of America’s largest corporations. Known for doubling their growth in the past five years, these four US companies comprise FANG:

  • Facebook: FB
  • Amazon: AMZN 
  • Netflix: NFLX
  • Google (Alphabet): GOOGL

Each FANG stock trades in impressively high volume on the NASDAQ stock exchange. FANG is very similar to another stock acronym, FAANG, which includes the same stocks with the addition of Apple. These stocks are often grouped because they each have excellent price movement and liquidity

Amazon stock is common in FANG ETFs

 

Why Investors Buy and Sell FANG ETFs

Exchange-traded funds (ETFs) and mutual funds tracking the S&P 500 or other well known broad market indices will generally include all the FANG stocks as they are now such an important part of the U.S. stock market by size.

But there are many reasons to invest in FANG ETFs:

Market Capitalization and Revenue

FANG has a joint market cap of approximately $3.86 trillion as of March 2021. And their individual market caps are just as impressive:

Netflix, the smallest of the group, has had unprecedented growth over the past five years. And each FANG stock has risen at least 100% in the past five years, which is impressive growth for established corporations. 

In 2020, each FANG corporation had revenue earning in the multi-billions:

Top Stocks on the S&P 500

The companies within FANG lead and influence the performance of their sectors. These companies are such big heavyweights that, except for Netflix, they are in the top ten most valuable stocks of the S&P 500:  

  • Amazon is #3 with 4.5% of the S&P 500 value
  • Alphabet is #4 with 3.5%
  • Facebook is #5 with 2%

Only Microsoft and Apple hold more value. The S&P 500 gained 16.26% in 2020, boosted primarily by these tech giants who outperformed the rest of the index.

Because the FANG stocks hold a large percentage of market value and have high trading volume, they can affect the overall volatility of the market.

Reliability and Durability

FANG stocks have grown to be the top stocks on the S&P 500 through innovation and service diversification, enabling them to weather market changes and recessions. During the pandemic in 2020, FANG stocks were up 43% compared to the rest of the sector that lost around 4%. This growth illustrates the importance of having FANG ETFs.

FANG ETFs are reliable long-term investments. The FANG companies provide stability to the fund even in challenging market conditions. A FANG ETF balances the distribution so that your portfolio is subject to the volatility of one FANG stock. 

Network Effect

Almost all of the FANG companies benefit from the network effect, where goods and services gain indirect value as more people use them. Each of these companies has an enormous membership that allows:

  • Products have more value because of the billions of active users.
  • Seller services become more attractive to third-party merchants.
  • Valuable data analytics and feedback to drive content and services.
  • An invaluable ecosystem locks in users who become loyal.

The extensive network of subscribers and members gives these companies a competitive advantage.

Advanced Technology

FANG companies utilize bleeding-edge technology and innovation to stay ahead of the curve. All four corporations are incorporating artificial intelligence (AI) into their offering and operations. They use AI for managing ad auctions, personalizing recommendations, providing virtual assistants, conversational AI, and streamlining operations. 

Other tech that is gaining attention that these companies are investing in research and development are:

High Trading Volume

FANG stocks show consistently high trading volume, keeping their bid/ask spread tight. Investors are attracted to FANG stocks for options trading because they can easily sell the stocks, benefiting their short-term strategies. 

Many options traders leverage the high trading volumes of the FANG stocks. And some traders exclusively trade FANG stocks because they can scale their volume quickly compared to other stocks. 

Generally, FANG share prices can trade at a high price, so using a FANG ETF is one way to gain exposure to all stocks in one trade. Using an ETF may also be a less volatile way to gain exposure to

Netflix stock is common in FANG ETFs

Understanding FANG ETFs

While most FANG ETFs are not exclusive to FANG stocks, the FANG stocks heavily influence and buoy the fund. More about the FANG corporations:

Facebook

Mark Zuckerberg created Facebook in 2004 while at Harvard. Facebook defined the social networking industry. Zuckerberg still leads the company as CEO. Facebook’s IPO was in 2012 but didn’t start turning a profit until it began selling ad space. Marketers preferred Facebook advertising spends over traditional media because it could target and track users better.

To retain social media subscribers who can be fickle, Facebook has acquired several competitors and social media breakouts to stay relevant. Its most notable acquisitions were Instagram and WhatsApp.

In 2021, Facebook has roughly 2.8 billion users and boast 20% revenue growth. Facebook also has the steadiest balance sheet and cash flow of all the FANG stocks. However, Facebook is surrounded by controversy. It is under scrutiny for unethical practices of content moderation, data privacy, and antitrust investigations. 

With massive tech regulation looming, it’s no wonder that Facebook leads with $10 million in lobby spending in 2020. But Facebook isn’t alone. All of the FANG corporations have a vested interest in Washington’s decision about the tech industry.

Amazon

Amazon initially started back in 1995 as an online bookseller. Since then, it has grown into one of the largest multinational tech corporations. Founded by Jeff Bezos, Amazon’s predominant services include e-commerce, distribution, and digital streaming. Amazon is one of the few companies in FANG that leads in multiple industries

Amazon is the world’s largest online retailer, owning 47% of the US e-commerce market. The company boasts over 100 million Amazon Prime members, where one in three Americans has a Prime membership. In 2020, Amazon reported $386 billion in net sales and a net income of $21.3 billion.

Amazon has built an empire utilizing best of class practices in distribution, cloud computing, data analytics, and business to consumer (B2C) program that allows third-parties to sell their products on Amazon’s platform.

Netflix

Created in 1997, Netflix started as a DVD rental by mail subscription service and has grown into a leading tech and streaming media services provider and the world’s most popular streaming service. 

It offers a user-friendly platform that works across the user’s various devices to watch movie and television shows with no commercials for an affordable subscription price. You can also download media to watch offline, which is a differentiating option.

In recent years, Netflix has begun producing its own exclusive content to retain subscribers and compete with streaming services like Disney+ and Hulu--a decision that’s giving it a considerable advantage over other services.

Netflix is the 36th most valuable company globally. Its market cap is substantially smaller than other FANG stocks, but it’s popular among investors because of its meteoric growth in the last five years. If you had invested in Netflix in 2015, your gains would be 477% in 2020

Netflix is 21st on the S&P 500 and boasted a record year in 2020 with annual revenue of $25 billion and over 200 million memberships. Their operating profit also grew by 76% to $4.6 billion.

Google (Alphabet)

Founded in 1998 by Larry Page and Sergey Brin, Google started as an internet search engine. Flaunting a sophisticated and superior algorithm for indexing the growing number of internet websites, Google is the largest internet search engine, claiming 92% of the internet’s search volume.

Google restructured in 2015 under the parent company Alphabet to diversify its services and expand its business model. Alphabet offers a complex and profitable advertising business and well as several popular web applications such as: 

  • Google Docs
  • Google Maps
  • Gmail

Alphabet has also acquired several companies to expand its web applications and product offering. The most notable acquisitions include YouTube and Android. Alphabet claims that Android, the mobile operating system, owns close to 72% of the global smartphone market share.

Alphabet is split into two stocks GOOG and GOOGL, as a way to preserve the founders voting power. GOOGL is the common stock, and GOOG is class C stock. Alphabet dilutes the stock by having two stocks and reduces daily volumes, making it less attractive to day traders. Alphabet has a market cap of 1.4 trillion and a strength rating of 69 as of March 2021.

Google stock is common in FANG ETFs

How to Invest in FANG ETFs 

Until very recently, investors were mostly limited to trading stocks or options on individual FANG stocks. Investors looking for broader exposure were limited to strategies such as technology ETFs or index funds that included exposure to many more companies than just FATANG.

If you’re interested in FANG exchange-traded products (ETPs), only one company offers a range of products on FAANG, GAFAM and FATANG stocks. Graniteshares ETPs are “pure play” investments, meaning that they are not diluted with unrelated stocks. Graniteshares ETPs follow equally weighted indexes that rebalance quarterly. Graniteshares family of ETPs allows investors to go long or short the FANG indices or even 3x leveraged.

Product Name Ticker Leverage Factor
GraniteShares FAANG ETP FANG  
GraniteShares 1x Short FAANG Daily ETP SFNG -1x
GraniteShares 3x Long FAANG Daily ETP 3FNG +3x
GraniteShares 3x Short FAANG Daily ETP 3SFG -3x
GraniteShares GAFAM ETP GFAM  
GraniteShares 1x Short GAFAM Daily ETP SGFM -1x
GraniteShares 3x Long GAFAM Daily ETP 3GFM +3x
GraniteShares 3x Short GAFAM Daily ETP 3SGF -3x
GraniteShares FATANG ETP FTNG  
GraniteShares 1x Short FATANG Daily ETP SFTG -1x
GraniteShares 3x Long FATANG Daily ETP 3FTG +3x
GraniteShares 3x Short FATANG Daily ETP 3SFT -3x

 DISCLAIMER

This is a disclaimer stating that all trading and investing comes with risks. Always do your research and do not invest more than you can afford to spend.

GraniteShares accepts no responsibility for any loss or damage resulting directly or indirectly from the use of this blog or the contents. GraniteShares Limited (“GraniteShares”) (FRN: 798443) is an appointed representative of Duff & Phelps Securities Ltd. (FRN: 466588) which is authorised and regulated by the Financial Conduct Authority.

This blog does not constitute an offer to buy or sell or a solicitation of an offer to buy securities in any company. Nothing contained herein constitutes investment, legal, tax or other advice nor is to be relied upon in making an investment or other decision. No recommendation is made positive or otherwise, regarding individual securities or investments mentioned herein. Any summary list of risk factors does not purport to be a complete enumeration or explanation of the risks involved in a particular investment. Prospective clients must consult with their own legal, tax and financial advisers before deciding to invest. This email contains the opinions of the author and such opinions are subject to change without notice. The source of data is GraniteShares unless otherwise stated. No guarantee is made to the accuracy of the information provided which has been obtained from sources believed to be reliable. This email and the information contained herein is intended only for the use of persons (or entities they represent) to whom it has been provided. Past performance is not a reliable indicator of future results.  The value of an investment may go down as well as up and can result in losses, up to and including a total loss of the amount initially invested. Investments may involve numerous risks including, among others, company risks, general market risks, credit risks, foreign exchange risks, interest rate risks, geopolitical risks and liquidity risks.  Please note that GraniteShares short and leveraged Exchange Traded Products are for sophisticated investors.

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