Why I’d still call the FANG+ ETF a buy

The Global X Fang+ ETF (ASX: FANG) has been a very strong-performing exchange-traded fund (ETF), but I think it still has a lot of return potential from here.

The FANG ETF owns a portfolio of 10 of the largest and most compelling technology and tech-related businesses in the US.

Those ten names are: Tesla, Snowflake, Amazon.com, Apple, Alphabet, Meta Platforms, Microsoft, Netflix, Broadcom and Nvidia.

Collectively, those companies have done very well, and it’s showing for the fund’s returns.

FANG ETF performance

The performance of an ETF is dictated by the returns of the underlying holdings.

This ETF was created in February 2020 and has done well since then. Since its inception, the FANG ETF has returned an average of 32.6% per annum. Over the past three years, it has returned an average of 21.4% per annum. In the last 12 months, it has returned 42%.

Those are very strong returns. But first, we should be very clear that past performance is not a guarantee of future performance or even a reliable indicator of future returns.

When share prices rise rapidly, it could mean that the subsequent shorter-term returns aren’t quite as good because the returns may have been front-loaded.

The annual management fee of the FANG ETF is just 0.35%, so the costs aren’t too much of a detractor.

Why I think good returns can continue

These stocks have been significant drivers of the US share market and the global share market.

Many of them are at the forefront of new products and services, with excellent tailwinds that seem nowhere near finished blowing.

The global digitalisation of business operations is very helpful for the cloud computing operators of Microsoft (Azure), Alphabet (Google Cloud) and Amazon (AWS).  

The growth of online video has been huge for Netflix, and it also benefits Alphabet (YouTube) and some of the other FANG ETF holdings to a lesser extent.

AI has already been a huge growth area for Nvidia, Microsoft, and Alphabet. I think it could be an important earnings driver over the next few years.

Automated cars could be one of the next major growth runways that these businesses unlock. Alphabet’s Waymo is already providing driverless taxi rides, while Tesla is still working on it.

Augmented reality and virtual reality could be another earnings driver for some of these stocks, including Meta Platforms and Apple.

Foolish takeaway

The FANG ETF owns many of the stocks benefiting from global technological changes. While valuations can sometimes get ahead of themselves, these stocks are delivering more and more profit as the years go by, justifying higher share prices.

This fund certainly doesn’t look cheap, but I wouldn’t be surprised if it beats the S&P/ASX 200 Index (ASX: XJO) over the next five years because of the collective earnings growth potential of those US shares.

The post Why I’d still call the FANG+ ETF a buy appeared first on The Motley Fool Australia.

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Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool’s board of directors. Randi Zuckerberg, a former director of market development and spokeswoman for Facebook and sister to Meta Platforms CEO Mark Zuckerberg, is a member of The Motley Fool’s board of directors. John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Motley Fool contributor Tristan Harrison has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has positions in and has recommended Alphabet, Amazon, Apple, Meta Platforms, Microsoft, Netflix, Nvidia, Snowflake, and Tesla. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has recommended Broadcom and has recommended the following options: long January 2026 $395 calls on Microsoft and short January 2026 $405 calls on Microsoft. The Motley Fool Australia has recommended Alphabet, Amazon, Apple, Meta Platforms, Microsoft, Netflix, and Nvidia. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.