The exchange-traded fund (ETF) Global X Fang+ ETF (ASX: FANG) has been one of the best-performing funds in 2024. But I don't think this will be the end of the long-term gains.
As we can see on the chart above, the FANG ETF has climbed a hefty 41% this year. In comparison, the S&P/ASX 200 Index (ASX: XJO) has climbed by 10% — not a bad result, but a significant underperformance to the FANG ETF.
Past performance is not a reliable indicator of future performance, of course, and I'm certainly not expecting the FANG ETF to rise another 40% in the next year.
But I do believe that this fund, which provides access to leading US technology companies, can beat the ASX 200 again over the next five years. Here's why.
Tax cuts
While not guaranteed to occur, incoming United States president Donald Trump has indicated he wants to reduce business taxes to 15%, down from 21%.
We don't fully understand how many businesses would benefit and how it would work yet. I'm sure more details will come in due course.
But I wouldn't be surprised if the businesses inside the FANG ETF see their taxes reduced to some degree, which would boost their earnings per share (EPS).
Investors typically value a business on how much profit they're making and could make in the future. A taxation boost to EPS should theoretically boost the share price.
Great businesses
The FANG ETF is not known for strong diversification. It has only 10 positions that are designed to be equally weighted. But I think these companies have been and can continue to be wonderful investments.
Currently, the FANG portfolio holds these 10 giant technology businesses:
- Crowdstrike
- Netflix
- Nvidia
- ServiceNow
- Amazon.com
- Alphabet
- Meta Platforms
- Apple Inc
- Broadcom
- Microsoft
These companies are among the best in the world at what they do, whether that's smartphones, device software, social media (such as Instagram), online video, online search, cybersecurity, e-commerce, cloud computing, AI and more.
They also typically have strong profit margins, excellent economic moats and effective management.
Considering the world is becoming increasingly technological, and that these companies are some of the entities driving that change, this area of the global share market is where I'd want at least some of my money, whether that's through the FANG ETF or a different investment.
Long-term valuation creation
I often say that, in the business world, winners keep winning. Companies like Microsoft, Apple and Alphabet are so far ahead of the competition that it may be almost impossible for others to catch up starting from scratch.
With their high return on equity (ROE), it makes sense for these winners to retain and reinvest profits in improving their products or services and developing new offerings.
In my opinion, these companies' rising profits are likely to lead to ongoing capital growth, even if they start with relatively high price/earnings (P/E) ratios.
The FANG ETF has returned an average of 20% per annum over the past three years. While the next three years aren't guaranteed to be as good, I think the FANG ETF has plenty of capability to outperform the ASX 200.
