There's one ASX share in-particular that I think is a good option to get exposure to the US FAANG tech shares. I'm talking about BetaShares NASDAQ 100 ETF (ASX: NDQ).
For people that don't know, the FAANG shares are a group of technology stocks in America. It stands for Facebook, Apple, Amazon, Netflix and Google. Google is now called Alphabet, so perhaps it should be called FAANA. Or FAAAN.
Over the past decade there are few shares that have performed as well as this tech group have.
When you look at the recent profit updates you can see that the FAANG shares can perform strongly (perhaps even stronger) during a global pandemic.
More people are staying inside. They may watch more Netflix or Youtube. They may go on one of Facebook's platforms more often. Perhaps they're more likely to order things on Amazon. Maybe they'll decide to buy a new Apple device.
The FAANG shares mostly deliver their services digitally, so they were well suited to keep thriving during the COVID-19 restrictions.
Facebook, Apple and Amazon all reported impressive numbers:
Amazon said its sales jumped 40% for the three months to US$88.9 billion with profit doubling to US$5.2 billion.
Apple reported its quarterly revenue increased 11% year on year to US$59.7 billion with remote work and school contributing to higher sales and iPads and Mac computers. Apple's profit increased 12.5% to US$11.25 billion.
Facebook announced that its revenue increased by 11% to US$18.7 billion and net profit rose by 98% to US$5.18 billion.
Alphabet revealed that its revenue fell 2% to US$38.3 billion and net profit dropped around 30% over the corresponding period as many companies reduced their advertising spending.
Alphabet's revenue was better than expected, so I suppose that counts as a win as well.
Technology juggernauts
The FAANG group have incredibly strong economic moats. You don't see the same sort of strength with ASX shares.
Imagine how much you'd need to spend to create a better phone company (and app store) than Apple. Think how much you'd have to spend on software development and advertising to be people's preferred internet search engine over Google. Would it even be possible to dislodge any them? The FAANG shares are powerful.
There's more growth to come. More advertising will probably shift to digital, particularly when it comes to advertising on online video – good for Facebook and Alphabet's Youtube. Virtual reality will be good for Facebook's Oculus. A shift to automated cars should be very good for Waymo. Quite a few of the NASDAQ giants are helping the world shift to cloud computing.
NASDAQ ETF
There's more to BetaShares NASDAQ 100 ETF than just the FAANG shares. The ETF owns 100 shares. There are other very important holdings like Microsoft, Nvidia, PayPal, Cisco, Intel, Broadcom and so on. But Apple, Amazon, Microsoft, Alphabet and Facebook make up almost half of the ETF's holdings.
The ETF offers good diversification for a pretty cheap fee. Its annual management fee is 0.48%. There are ETFs that cost less, but you get targeted exposure to some of the best technology businesses in the world. It's the net returns that count the most.
It has performed very well after fees. Over the past year the ETF has returned 35.5%. Over the past three years it has returned 26.6% per annum and over the past five years it has returned 21.5% per annum. You can't argue with those types of returns. That's much better than the ASX in my opinion.
The FAANG shares are powering ahead. But there are a couple of potential problems ahead. One is that they are coming under increased scrutiny by politicians in the US who claim they are being anticompetitive and bias. In other places around the world, the companies face slightly lower profit margins – Australia wants the FAANG shares to pay for news and Europe is challenging them on competition and tax.
But I don't think those issues will stop the FAANG shares. The US wouldn't want to break them up into pieces – otherwise the Chinese giants may gain an advantage.
I think BetaShares NASDAQ 100 ETF is a great investment idea for the long-term, though I think the US election could cause some volatility. Sometime in the next six months could prove to be a good buying opportunity. But you should be able to do well from today's price.
