Always Look Under The Hood

Posted on July 27, 2018 by Gemmer Asset

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“FANG” has become a popular term in finance circles over the past few years (or more recently “FAANG”). It’s an abbreviation for 4 (or 5) major US tech companies Facebook, Amazon, Netflix and Google – the second A in “FAANG” stands for Apple. And because these days there is an ETF for everything (see here and here), there is an ETF for this new acronym – its ticker is of course: FNG.


This new ETF from AdvisorShares is actively managed, so let that be a preamble to what I’m about to say…


By now you may have heard that Facebook’s stock hit a bit of a rough patch over the last 24 hours. They reported earnings and while EPS was fine, revenue and user growth both disappointed. You can read more here. If you happened to hold the FNG ETF, you may have panicked, thinking it’d be down big after FB’s drop. After all, it’s the F in FNG, right?


It turns out the managers of the ETF sold their entire position in Facebook during the Cambridge Analytica scandal in March of this year.



Bloomberg notes that this isn’t the first time the fund has done something like this:


“It’s not the first time adjustments to FNG’s holdings were affected by earnings. Earlier this year, FNG unloaded its Apple position, which had accounted for almost 4 percent of the fund at one point, right before the tech giant posted earnings that showed a growing services business and featured a bullish revenue forecast. Additionally, the fund didn’t hold any Google stock between May 24 and July 16.”


OK, so the A for Apple isn’t in the ETFs ticker, so maybe we can cut them some slack… but Facebook?? Maybe all these active moves have helped performance… After all, missing out on a -20% drop is certainly a good thing. Well, not so much… Here is a total return chart of FNG versus the NYSE’s FANG Index over the past 12 months.



FNG is lagging by 40%! In one year! And if you compare the +4.6% return of the FNG ETF to the average return of the 4 FANG stocks (which includes Facebook’s -19% drop yesterday), the relative performance is even worse.



What if Facebook had knocked their earnings numbers out of the park? If you owned FNG and weren’t aware of their daily holdings, you’d be reasonable in assuming your position in the ETF would benefit from a pop in the stock. Best case, the “FNG” ticker is a bit misleading.


Bottom line – always, always, always look under the hood of your investments. Things aren’t always what they seem.





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