Sharpen your FANGs for Halloween
Last week was a fantastic one for the FANG stocks – Facebook, Amazon, Netflix and Google − with Amazon and Google (now Alphabet) posting market beating earnings that prompted sharp rises in their share prices.
Amazon reported earnings of 52 cents a share after the market closed last Thursday, which was well ahead of the consensus estimate of just 1 cent, with revenue up a massive 34% to $43.7 billion. This enabled the shares to rise by an incredible 13% on Friday.
Alphabet also announced some impressive numbers with adjusted earnings up 32% from a year ago and revenue 24% higher at $27.8 billion. We are now just waiting for Facebook’s third-quarter earnings on Wednesday 1st November as Netflix released its figures earlier in October.
Year-to-date (up to close on Friday 27th October) the FANGs have returned 55%, 47%, 61% and 30% respectively.
Opinions are divided as to how these stocks will perform in the future, but there is a good chance that they will lead the market higher or lower, so it is important that investors take a view and sort out a suitable exposure.
If you think that the bull market in these tech mega caps has further to go you could take advantage by buying the Scottish Mortgage Investment Trust (LON:SMT), which has Amazon, Facebook and Alphabet in its ten largest positions.
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The managers believe that the rate of change for globalisation and technology is getting faster and that the global economy will be increasingly driven by places such as Silicon Valley and the East Coast of China (Beijing, Shanghai and Shenzhen).
Scottish Mortgage is positioned to benefit from the manager’s view of the future direction of the world and it is hard to argue with a fund that has delivered a 300% share price return over the last 10 years. It is the largest investment trust on the market with a value of £6.178 billion.
If you are a bear at these elevated price levels there are a couple of short ETFs that you could use to profit from a fall in the NASDAQ 100. These are essentially designed to generate a 1% daily gain for each 1% daily decline in the technology laden index.
If you think that the bull market in these tech mega caps has further to go you could take advantage by buying the Scottish Mortgage Investment Trust.
The NASDAQ 100 includes 100 of the largest domestic and international non-financial companies listed on the NASDAQ stock market based on market capitalisation. It is dominated by the large US tech stocks and at the end of September, Apple, Microsoft, Amazon, Facebook and Alphabet made up 42% of its total weighting.
If your broker allows you to invest in US-listed ETFs a good option would be the Proshares Short QQQ Inverse ETF (NYSE:PSQ). This has $400 million of assets under management and aims to generate daily returns before fees and expenses that correspond to the inverse daily performance of the NASDAQ 100.
A higher risk option would be the UK-listed Boost NASDAQ 100 3x Short Daily ETP (LON:QQQS). This is a fully collateralised, UCITS eligible Exchange-Traded Product that provides three times the inverse daily performance of the NASDAQ-100 adjusted to reflect the fees and costs of shorting.
These ETFs would only be suitable as short-term holdings for those who expected an imminent correction in the prices of the FANG stocks. It is also important to appreciate that returns over periods of more than one day will differ to the index due to the compounding effect of the daily returns.
The FANG stocks have had a huge impact on investor returns and they are likely to continue to play a key role. Those who get this long or short decision right will make a killing, while those that don’t will haemorrhage cash from their portfolio.
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