Strategies For Investing In Faang Etfs: A Comprehensive Guide

The FAANG stocks – Meta (formerly Facebook), Amazon, Apple, Netflix, and Google (Alphabet) – are some of the top-performing stocks in the US market. They are high-growth stocks in the technology and consumer discretionary sector, and they make up a significant portion of the total market capitalization of the stock market. As such, their price movements can have a large impact on the market as a whole. There are several ways to invest in FAANG stocks, including directly investing in individual stocks, buying FAANG stocks through an exchange-traded fund (ETF), or investing in US-focused Indian feeder mutual funds that invest in FAANG stocks. ETFs are a collection of many stocks/bonds traded under one fund and are similar to mutual funds. They are traded on the US stock exchange with real-time pricing and provide an easy and cheap way to get exposure to a sector or group of companies.

What are FAANG stocks?

FAANG stocks refer to the stocks of five prominent American technology companies: Meta (formerly Facebook), Amazon, Apple, Netflix, and Alphabet (formerly Google). The term was first coined by Jim Cramer, the television host of CNBC's "Mad Money," in 2013, who praised these companies for being "totally dominant in their markets." The acronym originally stood for "FANG" until 2017 when Apple was added to the group, turning the acronym into FAANG.

The five FAANG companies are among the largest and most influential companies globally, with a combined market capitalization of around $9 trillion as of Q2 2024. They are well-known brands among consumers and are famous for their remarkable growth and large market capitalizations. From an investment perspective, these stocks are generally praised for their stellar historical track records and clear leadership positions within their industries.

FAANG stocks are publicly traded on the New York Stock Exchange (NYSE) or the NASDAQ, and they are included in popular exchange-traded funds (ETFs). They are easy to acquire and routinely held by large investors due to their perceived strength, growth, and momentum. However, there are concerns about their potential overvaluation and the risks associated with their influence and power.

FAANG stocks have a significant impact on the broader stock market due to their large market capitalizations and investor inclusion. As of 2022, they were collectively worth a little less than $7 trillion, suggesting that these companies comprised about 15% of the March 2022 U.S. stock market value. They also make up a significant portion of the S&P 500 index, with four of the FAANG companies (Apple, Amazon, Meta, and Alphabet) in the top 10.

In summary, FAANG stocks represent some of the most successful and influential technology companies globally, and they have brought great returns to investors over the years.

How to buy FAANG stocks from India

FAANG stocks are some of the top-performing stocks in the US market, referring to five popular and high-performing American technology companies: Facebook (now Meta), Amazon, Apple, Netflix, and Google (now Alphabet).

There are a few ways to invest in FAANG stocks from India:

Invest directly in FAANG stocks

You can open a US brokerage account through domestic brokerages that offer this service or through a foreign brokerage with a presence in India. You will need your PAN number, an image of your PAN card, and proof of address. As an Indian resident, you are allowed to wire funds to the US under the RBI's Liberalized Remittance Scheme, which lets you remit up to $250,000 per year.

Invest in US-focused Indian feeder mutual funds that invest in FAANG stocks

This option has no investment limit as it is done in Indian rupees. However, it may be more costly as there is an annual expense ratio (fees charged to manage the fund).

Invest in ETFs for FAANG stocks

Exchange-Traded Funds (ETFs) are a collection of many stocks/bonds traded under one fund, similar to mutual funds. ETFs are traded on the US stock exchange with real-time pricing and are a cheap way to gain exposure to a sector or group of companies.

Fractional Ownership

Fractional ownership makes buying US stocks more affordable for Indian investors. You can invest in all five FAANG stocks or others with an amount as low as Rs 5,000 or even $1.

Example ETFs

• Invesco QQQ Trust, Series 1 ETF: based on the NASDAQ 100 index, including FAANG or FAAMG companies (Amazon, Apple, Microsoft, Meta, Netflix, Google, and Tesla).
• IShares Russell 1000 Growth ETF: provides exposure to US companies with expected high earnings growth, including Amazon, Microsoft, and Meta.
• Motilal Oswal S&P 500 Index Fund: an Indian ETF that invests in the S&P 500.
• Mirae Asset NYSE FANG+ ETF Fund of Funds: another Indian fund of funds option.
• MicroSectors FANG+ ETN: an exchange-traded note that tracks the FANG+ index, with FAANG stocks making up about half of its portfolio.
• SPY ETF or the SPDR S&P 500 ETF: tracks the S&P 500 index, giving exposure to FAANG stocks.
• Pacer Trendpilot 100 ETF (PTNQ): provides access to Nasdaq 100 companies, including Apple, Microsoft, and Amazon.
• Invesco S&P 500 Top 50 ETF (XLG): heavily tilted towards fast-growing companies, with 37.1% of holdings in the information technology sector.
• Global X NASDAQ 100 Covered Call ETF (QYLD): a large-cap growth fund that uses a covered call strategy, with holdings in Apple, Microsoft, and Amazon.

Mutual funds that invest in FAANG stocks

Mutual funds are a great way to get exposure to FAANG stocks without having to purchase individual shares. By investing in mutual funds that track the S&P 500 or the broader stock market, investors can gain indirect access to these influential companies. Here are some examples of mutual funds that invest in FAANG stocks:

• Vanguard 500 Index Fund: This fund seeks to mirror the returns of the S&P 500 and invests about 12% of its portfolio in the five FAANG stocks. As of 2022, it was worth about $19.0 billion and had a dividend yield of 1.0%.
• SPDR S&P 500 ETF Trust: This ETF represents the S&P 500 weighting and has the top 10 companies, including Apple, Amazon, Meta, and Google, comprising more than 28% of the index's total value.
• IShares Global Tech ETF: With a market value of $1.6 billion and a dividend yield of 0.9%, this "global" fund invests domestically and abroad, with a heavy focus on the U.S. market. While it doesn't include Netflix, it has large holdings in Apple, Facebook, and Alphabet.
• BlackRock Science and Technology Trust: This closed-end fund offers a sizable dividend yield of 5.2%. About 64% of its 89 holdings are in U.S. tech stocks, including FAANG members Apple, Alphabet, Amazon, and Facebook. The rest of its holdings are international, with China, Japan, and the Netherlands as the top representatives.
• PowerShares QQQ Trust: While technically not a tech fund, this ETF is tech-heavy, with over 60% of its assets in the tech sector. It tracks the Nasdaq-100 index and includes large holdings in the FAANG stocks, as well as companies like Starbucks, Marriott International, and Amgen.

It's important to note that while these mutual funds provide exposure to FAANG stocks, they also invest in other companies within the respective indices or sectors. Additionally, investors should consider conducting their own research and evaluating their investment goals and risk tolerance before investing in any financial instrument.

ETFs for FAANG stocks

FAANG stocks refer to the five high-performing US stocks of Meta (formerly Facebook), Apple, Amazon, Netflix, and Google (Alphabet). These influential companies are seen as drivers of the overall stock market's performance. FAANG stocks make up a significant portion of the total market capitalisation of the stock market, and their price movements can have a notable impact on the market as a whole.

There are two primary ways to own FAANG stocks: investing directly in individual stocks or buying them through an exchange-traded fund (ETF). ETFs are a low-cost investment option, allowing investors to gain exposure to several stocks within the same index. They are traded on the US stock exchange and provide real-time pricing, making them an easy and affordable way to gain exposure to a specific sector or group of companies.

One popular ETF option is the Invesco QQQ ETF, which gives investors access to Nasdaq 100 companies, including FAANG stocks, in a single investment. The fund ticker for this ETF is QQQ. Another option is the SPY ETF or the SPDR S&P 500 ETF, which tracks the S&P 500 index and provides exposure to FAANG stocks.

For investors in India, platforms like Vested offer access to FAANG stocks through ETFs. Vested allows investors to buy curated lists of ETFs, including the Invesco QQQ Trust, Series 1 ETF, which is based on the NASDAQ 100 index, and the iShares Russell 1000 Growth ETF, which provides exposure to high-growth companies. Additionally, Indian investors can invest in ETFs available in India, such as the Motilal Oswal S&P 500 Index Fund, or fund of funds like the Mirae Asset NYSE FANG+ ETF Fund of Funds.

The cost of investing in FAANG stocks

The FAANG stocks are some of the most commonly traded stocks in the world, and with good reason. The five companies that make up the acronym – Meta (formerly Facebook), Amazon, Apple, Netflix, and Alphabet (formerly Google) – are some of the biggest and most influential companies globally. As such, investing in FAANG stocks can be an attractive prospect for investors. However, it is important to consider the costs involved in investing in these stocks.

One of the most significant costs of investing in FAANG stocks is the high share price. As of March 2022, a single share of Alphabet, for example, sold for about $2,500, while Amazon traded just under $3,000. These high prices can make it difficult for smaller investors to gain exposure to these companies, especially if they want to own a significant number of shares.

Another cost of investing in FAANG stocks is the potential impact of volatility. While these stocks have historically delivered strong returns, they can also be subject to significant price swings in the short term. For example, Netflix shares rose rapidly to about $690 during the latter half of 2021 before dropping down to around $380 by March 2022. Such volatility can lead to substantial losses for investors who are not prepared for it.

FAANG stocks are also susceptible to the broader market trends and can be influenced by economic factors such as interest rate changes and recession. For instance, in 2022, the FAANG stocks underperformed the S&P 500 during a bear market. This underperformance can impact an investor's portfolio, especially if they are heavily invested in these stocks.

Additionally, the costs of investing in FAANG stocks go beyond just the financial. These companies are often subject to regulatory scrutiny and public criticism due to their size and influence. For example, Meta has faced scrutiny over its privacy practices, while Amazon has been criticised for its impact on small businesses. Such negative attention can impact a company's stock price and, in turn, an investor's returns.

Finally, the opportunity cost of investing in FAANG stocks should also be considered. By investing a significant portion of their portfolio in FAANG stocks, investors may be forgoing other investment opportunities that could provide higher returns or help diversify their portfolio. Balancing the potential rewards of investing in FAANG stocks with the opportunity cost of investing elsewhere is an important consideration for any investor.

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