Are Faang Companies A Good Investment
FAANG stocks have historically outperformed the S& P 500 index. As of July 2021, the worst-performing FAANG stock, Alphabet, has returned more than double the index average since the market bottom in March 2009. Meanwhile, Netflix stock is up more than 100-fold, and Amazon and Apple shares are up more than 50x.
What’s An Investor To Do
All of this can lead to investor confusion. You want to invest in Amazon, but dont want to end up being a bag holder who entered the trade right before the fall. Instead of investing directly in AMZN, you can invest in an exchange-traded fund that has the stock as one of its top holdings. Although this approach will not protect you in the event that AMZN slumps, it will help to limit any potential losses because you will be diversified.
When evaluating a stock, the P/E ratio is not the only consideration.
The Vanguard 500 Index Fund Admiral Shares
Amazon’s second-largest mutual fund holder is the Vanguard 500 Index Fund Admiral Shares . As of April 30, 2021, the VFIAX owns 8.8 million shares with a total market value of $30.50 billion. Amazon represents 4.20% of the portfolio within the VFIAX.
Vanguard’s VFIAX offers exposure to the stocks of 500 large corporations in the U.S. across various sectors. With $732 billion in assets under management, the VFIAX has an expense ratio of 0.04%, and a 10-year annualized return of 14.14% as of April 30, 2021.
The VFIAX also has a minimum investment requirement of $3,000 but Vanguard offers an ETF version called the Vanguard S& P 500 ETF . The VOO is similar to the VFIAX and costs the price of one share.
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Does Fomo Fear Of Missing Out Have You Down
Does FOMO fear of missing out have you down? If youre in the stock market but too scared of tech stocks, you might be feeling a twinge of regret right now.
The famous FAANG stocks Facebook , Amazon.com , Apple , Netflix and Google parent Alphabet returned 49% on average in 2017. These companies simply crushed the Standard & Poors 500-stock index, which gained a bit more than 19% last year.
If youre worried that these gains are divorced from fundamentals, youre barking up the wrong tree. All of these companies are growing revenues year-over-year, and all but Amazon are on pace for year-over-year profit gains .
Whats more, the price investors are paying for that growth is conservative relative to the broader market. James Wang, internet analyst at ARK Investment Management, sees many valuations for tech stocks being lower than the broader market. For example, Facebook is growing revenue at 47% but trades at P/E of 33. Its much cheaper than the S& P 500 average of 4% growth and 26 P/E, he says, noting that investors can buy FAANGs growth for cheaper than the broader markets growth.
You can access these stocks individually, but funds are an attractive alternative. Buying funds that are heavily invested in FAANG stocks allows you to ride them higher while also benefiting from other technological trends. Here are 10 funds that offer the best of several worlds.
- Expenses: 1.08%
- FAANG Weight: 7.9%
What Is Growth Investing
Growth investing seeks to capitalize on those companies that are growing sales, income and cash flows at rates faster than the average enterprise. Where value investing focuses on companies trading at prices below their intrinsic value, growth investing is more focused on companies rapidly expanding in their respective markets.
Growth does come at a cost. As noted above, most of the funds on our list have P/E ratios above 30. ARKK, which didnt make our list, weighs in with a P/E ratio of 123. One approach to growth investing is to seek out growing companies at reasonable prices . One fund in our list, SPGP, takes this approach.
As technology companies have enjoyed massive growth, they dominate growth funds. As noted above, some growth ETFs have 25% to 30% of the fund in just a couple of companies, all in the technology sector. Investors should keep this in mind, as a downturn in the technology sector could weigh on growth funds.
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Dont Neglect International Growth
The final ETF to consider is the iShares Core MSCI Emerging Markets IMI Index. This ETF tracks the performance of leading companies within emerging markets worldwide, including: China, south Asia, and South America. This ETF would provide exposure to companies such as: Alibaba, Tencent, Taiwan Semiconductor Manufacturing, Samsung, and Gazprom.
Like the previous two ETFs, this fund distributes a dividend although it is semi-annually. Its dividend yield is just about 5%.
It is important to note, that the version of this fund that trades on the Toronto Stock Exchange does not hold the companies directly. Rather, it holds the equivalent fund which trades on the NYSE Arca. Holding this fund would be wise given the amount of growth happening outside North America.
As stated in my article on the Bank of Nova Scotia, regions in South America are projected to grow at a much faster rate in the coming years than Canada and the United States.
Spdr S& p 500 Trust Etf
The investment seeks to provide investment results that, before expenses, correspond generally to the price and yield performance of the S& P 500® Index.
1 Yr return : 22%
Expense Ratio: 0.095%
Top holdings: Apple, Microsoft, Amazon, Facebook, Netflix, Alphabet, Tesla, Berkshire Hathaway, JP Morgan Chase, Johnson & Johnson.
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Etfs With Apple Inc Exposure
The following ETFs maintain exposure to Apple Inc. . ETF holdings data are updated once a day, and are subject to change.
To see a complete breakdown of any of the ETFs included in the table below, including sector, market cap, and country allocations, click on the ticker symbol.
282 ETFs have Apple Inc. within its Top 15 holdings as displayed below.
How Amazon Stock Fits Into Your Portfolio
With a share price approaching $4,000, buying a whole share of Amazon may be too expensive for many investors who are beginners. The good news? You are probably invested in Amazon already, particularly if you own any index funds that track the S& P 500 or the Nasdaq 100. Whats more, Amazon is among the top 15 holdings in more than 200 different exchange-traded funds .
If you are still keen to buy Amazon stock, you may be able to do so if your online broker offers fractional shares. Fidelity, Robinhood and Schwab are among the brokers that allow you to invest less than the full share amount. That said, its important to consider how much exposure you already have to any one stock, including Amazon. Even if you buy fractional shares, a stake of 5% or more in Amazon could make the performance of your investment portfolio too dependent on that one stock. You may also miss out on the diversification benefits of investing in a variety of other stocks. Thats why its important to seek out investment advice from a financial advisor before making any major changes to your portfolio.
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First Trust Dow Jones International Internet Etf
The First Trust Dow Jones International Internet ETFFDNI is the international counterpart to the popular First Trust Dow Jones Internet ETF FDN. While FDN is heavy on the likes of Amazon and FB, FDNI lays claim to being the ETF with the largest Shopify weight at about 10%.
FDNI’s Shopify weight is about 230 basis points higher than the ETF with the second-largest allocation to the stock. Overall, FDNI is a play on international equities with popular internet shopping footprints and is heavy on emerging markets stocks. The First Trust fund is higher by 14.1% this year.
How To Invest In Amazon With An Index Fund
Although investing in individual stocks can be appealing, investing in just one company can leave you vulnerable to potentially dramatic swings in prices. Thats why financial experts recommend most people invest in a diversified mix of index funds and exchange-traded funds that hold hundreds of companies stocks.
Luckily, AMZN is very easy to find in these funds: It usually represents about 7% of holdings in Nasdaq 100 funds and 3.5% of S& P 500 funds.
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Enter Etfs With Amazon Exposure
The five ETFs cited below, according to Amazon weighting, have AMZN as their top holding. If youre interested in taking a diversified investing approach to this stock, then it might be worth exploring these funds as an alternative to buying individual shares of AMZN. As with any investment, you should consider the facts and figures of each ETF thoroughly to determine the best fit for your investing goals.
- Tracks: Price and yield of the MSCI U.S. IMI Consumer Discretionary Index
- Inception: 10/21/13
- Average Daily Volume : 166,341
- Average Spread: 0.06%
- Issuer: State Street Global Advisors
- Tracks: Price and yield of the Consumer Discretionary Select Sector Index
- Inception: 12/16/98
- Average Daily Volume : 7,190,822
- Average Spread: 0.01%
- Tracks: Price and yield of the MSCI U.S. IMI/Consumer Discretionary 25/50
- Inception: 01/26/04
- Average Daily Volume : 137,708
- Average Spread: 0.07%
- Tracks: Price and yield of Market Vectors U.S. Listed Retail 25 Index
- Average Daily Volume : 17,854
- Average Spread: 0.06%
- Tracks: Price and yield of Dow Jones Internet Composite Index
- Inception: 06/19/06
- Average Daily Volume : 290,293
- Average Spread: 0.04%
Buy Etfs In Cad Or Usd
Even though XUS, XMU, and XHU shares are priced with Canadian Dollars, these funds still bet on the US dollar. The funds are valued in US dollars and later converted to Canadian before listing on the market. On the other hand, XQQ uses a different strategy called currency hedging.
Currency Hedging is a technique that gives investors exposure to the Canadian dollar. XQQ tracks the daily movement of the QQQ and the Canadian dollar at the same time. If QQQs value does not change, but the Canadian dollar rises against the American dollar, XQQ will increase. If QQQ doesnt move but the Canadian dollar lowers against the American, XQQ will decrease in value.
Over the past ten years, the US dollar has grown stronger in comparison to the Canadian dollar. As of August 8, 2020, one USD buys you 1.32 CAD.
If you believe the US dollar will continue to outperform the Canadian, buy XUS, XMU, XHU, or their US versions. In this case, buying QQQ would be better than buying XQQ.
If you believe the Canadian dollar will outperform the USD, buy Canadian hedged ETFs. The Canadian hedged versions of the recommended ETFs have the following tickers:
- Ishares Core SP 500 Index = XSP
- Ishares MSCI Min Vol USA Index ETF = XMS
- Ishares U.S. High Dividend Equity Index ETF = XHD
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Amazons Latest Financial Results
In the companys fourth, Amazon reported revenue of $137.4 billion which was a 9% increase from a year ago, though slightly lower than the estimates of Wall Street analysts. Meanwhile, the company offered guidance for the first quarter that is lower than the forecasts of analysts, showing that the big boost that Amazon saw during the worst of the Covid-19 pandemic is waning. The company also delivered earnings per share of $27.75.
The retail giant reported a nearly $12 billion gain from its investment in Rivian, an electric vehicle car company. Amazon Web Services a huge profit driver for the company saw its revenue jump nearly 40% year-over-year to $17.78 billion, beating analyst estimates.
The company also made an announcement that will certainly grab the attention of its more than 200 million Amazon Prime members: Prime subscriptions prices will be hiked up to $139 per year from $119.
Amazons shares jumped 12% during trading the morning after its earnings report, likely bolstered by the AWS and Rivian wins.
Investing In Faang Stocks And Etfs
Its hard to talk about the general stock market without mentioning one or more FAANG stocks. The tech giants make up a sizable portion of the S& P 500 Index.
That means many investors already have at least some exposure to them. Because the heavy weighting of FAANG stocks in indexes such as the S& P 500 gives them an outsize impact on the broader stock market, its worthwhile for investors to learn a bit more about them.
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Proshares Online Retail Etf
Even before the coronavirus outbreak, online retailers were pilfering market share from brick-and-mortar rivals. The pandemic is merely hastening that scenario and it’s to the benefit of funds such as the ProShares Online Retail ETFONLN.
The ProShares fund allocates approximately 24% of its weight to Amazon, a tally surpassed by just four ETFs.
Predictably, the Amazon exposure is meaningful. ONLN is up 18.5% year-to-date while the SPDR S& P Retail ETF XRT is down 17%.
Top 5 Mutual Fund Holders Of Amazon
Founded in 1994 as an online bookstore, Amazon.com Inc. has become the largest Internet-based retailer in the world. The company has also branched out into cloud computing, electronics, and content distribution, and it has begun testing drone delivery in certain areas.
Amazon’s stock has soared over the years and is notable for its extreme overvaluation according to traditional valuation metrics. In 2020, Amazon posted $21.30 billion in profit for the full year with net sales increasing to $386.10 billion, which was an improvement of 38% versus 2019.
Amazon’s stock has been popular among both individual investors and mutual funds, which are investment vehicles that hold a basket of stocks or securities. Below are the top five mutual fund holders of Amazon’s stock.
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First Trust Nasdaq Clean Edge Green Energy Index Fund
The investment seeks investment results that correspond generally to the price and yield of an equity index called the NASDAQ® Clean Edge® Green Energy Index. The index is designed to track the performance of small, mid and large-cap clean energy companies that are publicly traded in the United States.
1 Yr return : 139%
Expense Ratio: 0.60%
Top holdings: Tesla, Enphase Energy, Plug Power, NIO, Albemarle, SolarEdge Technologies, ON Semiconductor, Cree, Brookfield Renewable Partners, and Sunrun Inc
Global X Cloud Computing Etf Global X Cloud Computing Etf
As noted here earlier this week, cloud ETFs are on fire this year and that includes the Global X Cloud Computing ETF Global X Cloud Computing ETF CLOU. CLOU is the ETF with the second-largest Shopify allocation at 7.7%.
Of the roughly 30 ETFs with Shopify allocations, only FDNI and CLOU have weights north of 7% to the stock. Of the trio mentioned here, CLOU is the best-performing one this year as its higher by over 17%.
Photo credit: Raysonho @ Open Grid Scheduler, via Wikimedia Commons
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Fidelity Msci Consumer Discretionary Index Etf
There are Amazon ETFs and then there are AMAZON ETFs. The Fidelity MSCI Consumer Discretionary Index ETFFDIS. FDIS allocates over 34% of its weight to Amazon, the largest weight among all ETFs. In fact, that competition isn’t all that close as FDIS’s Amazon weight is more than 600 basis points above its next closest rival.
That heft is meaningful because FDIS is outperforming the number two Amazon ETF this year by 160 basis points.
Plus, FDIS is a sound bet for long-term investors because its 0.084% annual fee, or $8.40 on a $10,000 stake, is the lowest among all consumer discretionary ETFs.
Qqq Invesco Qqq Trust Series 1
QQQ investment seeks investment results that generally correspond to the price and yield performance of the NASDAQ-100 Index®. The composition and weighting of the securities portion of a portfolio deposit are also adjusted to conform to changes in the index.
1 Yr return : 42%
Expense Ratio: 0.20%
Top holdings: Apple, Microsoft, Amazon, Tesla, Alphabet , Facebook, NVIDIA, PayPal, and Intel
Comparison to S& P500
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The Best Etfs To Buy And Hold
The stock market goes through periods of rapid growth and decline. Not even Warren Buffet can predict with perfect accuracy the best stock, ETF, mutual fund, or what the stock market will do tomorrow. Its fair to say long term the stock market will approach new all-time highs as economic growth continues.
There are a few market index ETFs worth holding for us living in Canada in the long run. These products all have relatively different risks and potential for rewards
Spdr Portfolio Sp 500 High Dividend Etf
The SPDR Portfolio SP 500 High Dividend ETF is one of the best options for investors seeking fixed payments. This ETF tracks 80 companies in the SP 500 that yield high dividends.
Like all other companies in the SP 500, the stocks tracked by SPYD are blue chips or large caps. Most have been around for a long time and have survived multiple market recessions. Although not every stock tracked by SPYD is a value stock, it is still a safe investment in the long run, just like XUS/SPY.
Although SPYD does not screen companies for consistent yields, most companies followed by the index ETF contain large amounts of cash reserves. Due to these cash reserves, even if the market is crashing, these companies will most likely be able to pay their high dividends.
In the past ten years, SPYD returned an annual rate of 4%. In the last twelve months, SPYD has returned an average dividend of 6.4%. This dividend has also raised almost 5% annually, for the past three years.
As of September 24, 2020, one share of SPYD costs $26.58 . This ETF can only be bought on the New York Stock Exchange. This best ETFs US product is available in Canada. Ask your Canadian-based financial advisor to show you how. It has tax implications, so also consult with your accountant.
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