FANG's Strong Run Gives Risky Exchange-Traded Product Top Marks
January 13 2020 - 12:28PM
Dow Jones News
By Michael Wursthorn
The FANG stocks are already sinking their teeth into 2020.
The long-running FANG trade of buying highflying technology
stocks including Facebook Inc., Amazon.com Inc., Netflix Inc. and
Google parent Alphabet Inc. is continuing to pay off for investors
this year. All four stocks are up at least 2%, led by Facebook,
which has surged 7.4%.
Those gains have pushed one exchange-traded product that tracks
those stocks and uses leverage to magnify its returns near the top
of the leaderboard.
The MicroSectors FANG+ Index 3X Leveraged exchange-traded note
is up 23% this year, better than most of the other 2,300
exchange-traded products listed in the U.S., including other
leveraged and non-leveraraged products, according to according to
Morningstar. That follows a 117% rise last year.
The note, launched by Bank of Montreal in 2018, tracks an index
that has an equal exposure to 10 technology and communication
stocks, including the FANG companies, as well as Tesla Inc., Apple
Inc., Nvidia Corp., Twitter Inc., Baidu Inc. and Alibaba Group
Holding Ltd. All of those stocks have outperformed the broader
market through the first two weeks of the year.
But the FANG+ note takes on additional layers of risk to deliver
an even bigger return.
Unlike an exchange-traded fund, exchange-traded notes don't own
a portfolio of assets. They are simply debt issues by banks that
promise a return to the investor linked to the performance of the
assets they track. If the issuer collapsed and couldn't pay off the
debt, the investors could lose everything. ETFs, on the other hand,
generally can liquidate their assets.
The note also uses derivatives to magnify the moves of the
underlying index. So while the index tracked by the note is up just
7.3%, the FANG+ note has risen nearly three times that. The
leverage, however, works both ways and has the potential to magnify
losses, making the strategy especially risky during volatile
periods.
Even without the leverage, FANG stocks remain outperformers. The
S&P 500, which has risen 1.4% in 2020, trails the 10-stock FANG
index by about 6 percentage points.
Write to Michael Wursthorn at Michael.Wursthorn@wsj.com
(END) Dow Jones Newswires
January 13, 2020 12:13 ET (17:13 GMT)
Copyright (c) 2020 Dow Jones & Company, Inc.
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