Mirae Asset NYSE FANG+ ETF and FOF Review

Published: April 19, 2021 at 9:35 am

Last Updated on December 29, 2021

Mirae Asset NYSE FANG+ ETF is an open-ended ETF tracking the NYSE FANG+ Total Return Index. The Mirae Asset NYSE FANG+ ETF Fund of Fund is an Open-ended fund of fund scheme predominantly investing in Mirae Asset NYSE FANG+ ETF. The NFO period of both funds begins today (April 19th 2021). In this review, we analyse the Fang+ Index and if it makes sense to consider these funds for “international diversification”.

When someone wants “International diversification”, their choices are often heavily influenced by the last one-year performance of the index or fund. For example PGIM India Global Equity Opportunities Fund. Most investors just want something else that gives good returns with little appreciation of the implications.

Every time an NFO comes out (which is every two weeks), someone wants a piece of the action. “How about just 10% or 15% exposure?” they ask. When you want to buy something as volatile as the NYSE Fang+ index, that “small exposure” will quickly double or go down by half. Will these seekers of diversification rebalance their portfolios or just sit it out in fear of paying taxes?

I once asked in a video, “how do you know your portfolio is diversified?” and not one person even understood the question. Diversification often is just a fancy word to justify our FOMO. So if you can only look at the stocks in the NYSE Fang+ index and how it is performed or how these stocks have a global appeal, arguments about volatility, concentration risk, legal risks (anti-trust cases) will not appeal to you. Most people who say they have a high-risk appetite are simply stating that they are newbies.

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The index may be great, but the packing matters. You have an ETF tracking the index and a fund of fund that will track the ETF. This means the FOF will buy units at the price of the ETF. The liquidity of the ETF will affect the NAV of the FOF.

So even if you “like” this offering, wait a while to study the price-nav deviation of Mirae Asset NYSE FANG+ ETF. Consider the expenses of the ETF and FOF and then think about buying the Mirae Asset NYSE FANG+ FOF. There is no hurry.

Someone said the companies in Fang+ are not going to disappear anytime soon, so there is no hurry to buy these NFOs too! Anyway, most portfolios are cluttered. Additional clutter can wait a few months. With that preamble to satisfy the young guns who cannot wait to buy this, let us dig a bit deeper.

What is the NYSE FANG+ Index?

According to the Index methodology document, “the NYSE FANG+ Index is an equal-dollar weighted Index designed to track the performance of highly-traded growth stocks of technology and tech-enabled companies in the technology, media & communications and consumer discretionary sectors”.

What stocks qualify? Stocks listed in the US and classified within “Consumer Discretionary, Media & Communications or Technology sectors based on the ICE Uniform Sector Classification schema” are considered for selection. Securities with a market cap of 5 Billion USD, a trailing six-month average daily traded value of at least 50 Million USD.

Securities must represent  “high growth technology and internet/social media industry” with significant revenue exposures to one or more of the areas of search, social networking, autonomous driving, electric vehicles, smartphones, mobile payments, e-commerce, online games, streaming media, online entertainment, cryptocurrencies and blockchain, big data, artificial intelligence, machine learning, digital advertising, cloud services and other innovative technologies.

All stocks will have equal weight. The minimum number of stocks is 10, but it can be higher. The index opened on Sep 26th 2017 but has backtested data up to Sep 19th 2014. So not only is the index young but there is also quite a bit of cherry-picking involved in its construction.

Total return data for NYSE Fang+ could not be sourced from the public domain, however, the contribution from dividends is quite small. The annualized total return since inception is 34.78% and the annualized price return since inception is 34.49%. So the price return is a reasonable indicator of reward.

Since inception evolution of NYSE Fang+ Price Index in USD compared with S and P 500 Total Return Index in USD and NASDAQ 100 Total Return Index in USD
Since inception evolution of NYSE Fang+ Price Index in USD compared with S and P 500 Total Return Index in USD and NASDAQ 100 Total Return Index in USD

The movement after the March 2020 crash dominates the index evolution. Do you see that and put money in Mirae Asset NYSE FANG+ ETF Fund of Fund or do you see the time the index was “underwater” for a couple of years?

This can be better seen in the maximum drawdown. While the Covid related crash was similar for all three indices, the NYSE Fang+ has seen higher falls and delayed recoveries.

Maximum drawdown of NYSE Fang+ Price Index in USD compared with S and P 500 Total Return Index in USD and NASDAQ 100 Total Return Index in USD
The maximum drawdown of NYSE Fang+ Price Index in USD compared with S and P 500 Total Return Index in USD and NASDAQ 100 Total Return Index in USD

If you are thinking, higher drawdown does not matter, “I have a high-risk appetite and will ride it out”. Then I am afraid you have a lot to learn about portfolio management and, what is that word? Oh yes, “diversification”.

NYSE Fang+ is so young that it makes sense only to plot two-year rolling returns. The wild fluctuations are quite clear.

Two year rolling returns of NYSE Fang+ Price Index in USD compared with S and P 500 Total Return Index in USD and NASDAQ 100 Total Return Index in USD
Two year rolling returns of NYSE Fang+ Price Index in USD compared with S and P 500 Total Return Index in USD and NASDAQ 100 Total Return Index in USD

NYSE FANG+ is neither a replacement for the S&P 500 nor a substitute. It is a cherry-picked index steeped in hindsight bias that is highly volatile due to its equal-weighting and lower number of stocks. If that is not enough, the monopoly status of many stocks would mean anti-trust cases. It is unsuitable for most investors, and we do not recommend it. A small exposure is just that, “small”!

Those who wish to invest in his index, at the very least should (1) wait for a few months to see how well Mirae Asset is able to handle price-nav deviations (2) Invest in  Mirae Asset NYSE FANG+ ETF Fund of Fund and not Mirae Asset NYSE FANG+ ETF. Even if their exposure is small, the gains would quickly evaporate unless they rebalance regularly or tactical without fear of taxee. Not productive for “small exposures”.

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Pattabiraman editor freefincalDr M. Pattabiraman(PhD) is the founder, managing editor and primary author of freefincal. He is an associate professor at the Indian Institute of Technology, Madras. He has over nine years of experience publishing news analysis, research and financial product development. Connect with him via Twitter or Linkedin or YouTube. Pattabiraman has co-authored three print books: (1) You can be rich too with goal-based investing (CNBC TV18) for DIY investors. (2) Gamechanger for young earners. (3) Chinchu Gets a Superpower! for kids. He has also written seven other free e-books on various money management topics. He is a patron and co-founder of “Fee-only India,” an organisation for promoting unbiased, commission-free investment advice.
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