Investors of the ETFS FANG+ ETF (ASX: FANG) might be wondering what in the world of stocks is going on today.
The Australian listed exchange-traded fund (ETF) has fallen a steep 10%, prompting an eyebrow raise.
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FANG+ ETF unit price falls
For those less familiar, the FANG+ ETF is a highly concentrated fund tracking a basket of US shares known as the FANG+ stocks.
Essentially it's the old 'FAANG' faces with a few new friends. Most would know the usual suspects… Facebook, Inc. (NASDAQ: FB), Amazon.com, Inc. (NASDAQ: AMZN), Apple Inc (NASDAQ: AAPL), Netflix Inc (NASDAQ: NFLX), and Google parent company Alphabet Inc (NASDAQ: GOOGL) (NASDAQ: GOOG). This tradeable fund throws in 5 more tantalising tech names, such as Tesla Inc (NASDAQ: TSLA) and NVIDIA Corporation (NASDAQ: NVDA).
Considering there wasn't a major selloff in tech companies overnight, investors might be scratching their heads as the ETF drops. Well, the reason for the unit price falling today is the ETF going ex-dividend with a big capital distribution inbound.
The ex-dividend date is the cut-off date to receive the next dividend/distribution. With FANG+ ETF's ex-div date being today, investors can take their money elsewhere and still collect the fund's next payment. However, the fall in the unit price is a little more complicated.
Bigger distribution estimate
While some of the drop in the ETF price might be attributable to investors selling, a big contributor is a decrease in the fund's net asset value (NAV).
Because the FANG+ targets an equal-weighting of each stock, ETF Securities needed to rebalance the fund by selling down some positions during the period. These capital gains are then passed onto investors via the fund's regular distributions.
According to today's update, the fund has revised its distribution estimate from $1.47 to $2.15 per unit — roughly a 46% increase. The higher payment is due to greater than expected capital gains during the period.
Furthermore, the capital to be returned to investors is built into the NAV. Therefore, with $2.15 per unit expected to be paid out, the ETF's NAV has fallen to match the new NAV.
We reached out to ETF Securities for more insight. The fund's Head of Distributions, Kanish Chugh said:
The distribution FANG is paying out is primarily from the realized capital gains generated during the financial year. Holders of FANG prior to the 30 June 2021 will receive this distribution on the payment date of 15 July 2021, either in the form of cash or new units if you've opted into the DRP.
Market beating returns
Despite the price pullback, the ETFS FANG+ ETF is still outperforming both the NASDAQ Composite Index (NASDAQ: IXIC) and the S&P/ASX 200 Index (ASX: XJO).
In the past year, the FANG-focused ETF rallied 55.8%. Meanwhile, the tech-heavy NASDAQ climbed 44.4%… returns were even lesser-so for the ASX 200, at 24.6%.
