The fund aims to capture the performance from portfolio of companies which are part of NYSE FANG+ Index

For benefit of average retail investor and IFAs please explain what FANG and FANG+ stocks are. What is NYSE FANG+ index?

In 2013, Jim Cramer host of the popular TV Show, "Mad Money" coined the term "FANG" referring to Facebook, Amazon, Netflix and Google. Since then FANG has been used to refer to group of such high growth technologic centric companies in common parlance. These companies have emerged to be global innovation leader in terms of reshaping our daily lives.

The NYSE FANG+ Index is an equal weighted Index designed to represent a segment of the technology and consumer discretionary sectors consisting of highly-traded growth stocks of technology and tech-enabled companies. Currently Index consist of 10 stocks, which are reset to equal weights (10%) on a quarterly basis. The 10 stocks forming part of the index are Facebook, Apple, Amazon, Alphabet (Google), Netflix, Tesla, Twitter, Baidu, Nvidia and Alibaba.

Why is there such high interest globally in FANG+ stocks?

These companies have established themselves as leader in their field. For example, Facebook and Twitter have revolutionized the way people connect, interact and socialize. Amazon and Alibaba have changed the way we shop from brick and mortar to online/e-commerce. Alphabet's and Baidu are globally the two most popular search engine across the world. They are often touted as the companies who provided solution across the globe to any of our problem, with just one click. Apple has radicalized the definition of "smartphone" and designing and engineering of laptops. The computer gaming graphics was never better without NVIDIA's invention of Graphic Processing Unit (GPU). Tesla is standing on the gateway of changing the way world perceives electric vehicles. Netflix has made possible to stream series and movies across the globe sitting in your home couch.

These stocks have rallied strongly in the recent past, which has been supported by strong earnings and their expected earnings growth is also high. These 10 companies have historically been able to demonstrate solid underlying growth in terms of sales and earnings in the long-run. For example, in last 10 years equal weighted portfolio of FANG+ stocks have grown at CAGR of 27.4% per annum whereas the sales per share of this portfolio has also grown at ACGR of 27% per annum. FANG+ companies have led innovation before and are geared to do so in future too because of strong investments in R&D and several acquisitions across tech space.

Because of the kind of disruption these companies have been able to make, they have been able to exhibit economic moat over the others and as a result globally there seems to be always high interest in FANG+ stocks.

What is your outlook on these FANG+ from a long term (5 years plus) perspective?

These tech giants represent innovative leadership ranging from internet to social media to fintech etc. These companies have historically been able to demonstrate solid underlying growth in terms of sales and in earnings in the long-run. These companies constantly focus on reinventing themselves to maintain their competitive advantages with different product and services. These companies are disruptors in their field and continuously seek to improve their business model. For example, Netflix started as a DVD rental by mail in its initial year of business, however it re-invented itself into untested world of streaming movies on rent or subscription. Even, Amazon which simply started as online book seller store today has pioneered into online and e-commerce strategy etc.

The relentless focus on innovation and excellence have propelled these companies to dominate or create new markets and are geared to do so in future. These companies have been able to position themselves for an era of new technologies, disrupting existing paradigms, demographics reshaping the needs of the world's population and shifting consumer behaviours forcing changes to existing business models. Popular themes which are emerging across the globe are artificial intelligence, electric vehicle, e-commerce, cloud computing's, social media etc. FANG+ companies are at the forefront of these popular emerging theme as result of which we have an optimistic outlook over the longer investment horizon for FANG+ stocks.

In the last one year, we have seen growing interest in international equities, especially US equities. We have seen a number of NFOs related to international equity ETFs and FOFs in the 12 months. Why should Indian investors take exposure in international equities?

India equity market is still significantly led by traditional sector companies such as IT consultancy, banking and financial services, petroleum and hydrocarbon and consumer staples. While on the west coast it is technologic centric firms that are shaping the futures.

Further, globally the investors are inclining toward themes that are mega-trend in nature. Popular themes which are emerging across the globe are robotic and artificial intelligence, electric vehicle, cyber security, cloud computing's, e-commerce, social media etc. These themes are expected to shape our future in coming times and therefore are making buzz and are increasingly becoming part of global investor's portfolio. Since Indian equities provide avenues of only exposure to old economy themes, one needs to look at global investable universe to participate in such themes and mega-trends that are expected to transform the way we live and work.

Further, since the winners across the geographies keep on rotating and several underlying factors affecting various regions are distinct from each other, there exist potential for diversifying one's country risk exposure. Historically the correlation of Indian equities across the globe has been on the lower side, which indicates potential for diversification. Also, deprecation of INR has historically added to investor's return.

You are launching Mirae Asset NYSE FANG+ ETF and FOF. Please describe the salient features of your offering.

The fund aims to capture the performance from portfolio of companies which are part of NYSE FANG+ Index, these companies are leaders of current megatrends and are also geared to participate in future technology disruptions and are well known familiar names to the investors. The fund intends to provide equal weighted, low cost exposure to these global innovation leaders listed in US through a single focussed portfolio.

The ETF will have an expense ratio of around 0.33%, while the FoF will have an expense ratio of around 0.5% on the direct plan and around 1% on the regular plan (inclusive of the underlying ETF charges). The ETF will be investing in these stocks directly.

The product provides avenues for Indian investor to participate in the success and growth story of these big-tech companies in a focussed manner. Historicaly, the Index has outperformed NASDAQ 100 index significantly.

What are the benefits of passive investment in this theme (FANG+ stocks)?

Globally, specially in developed countries, financial markets are very informationally efficient as result of which active funds are consistently underperforming the benchmark. For instance, as per SPIVA report for year 2020 covering united states, active large-cap funds for 11th consecutive year have underperformed the broad-based indices such as S&P500. By investing via passive product specially in global markets, investors can negate or minimize the fund manager risk which can result into underperformance along with potential for outperformance. Further, most of domiciled tech active funds in US and US based funds in India have failed to outperform NYSE FANG+ Index over longer investment horizon. The passive products also provide transparency because of rule based investments and portfolio which is declared on a daily basis.

Lastly this exposure comes at very low cost. For instance, our ETF will charge a TER of around 33bps whereas the Fund of Fund which will feed into the ETF has a TER of around 50bps for direct plan and 100 bps for regular plan (including the cost of underlying). Now if you compare this with other funds available, this is lowest for Indian investors as the average TER of Fund of Funds are 1.9% and for active funds with global exposure are 2.4% respectively (regular plan)

What is your advice to investors who may want to invest in Mirae Asset NYSE FANG+ ETF or Fund of Fund? What is your minimum recommended investment tenure for this fund?

First and foremost, the aim of the product is to provide focused and equal weighted exposure to some of the big names of the tech sector that have not only caused disruption in the past but they have positioned themselves to benefit from the current mega-trends that intends to shape our world in future such as e-commerce, online streaming, artificial intelligence, cloud computing internet surfing, virtual reality etc. While the index has generated substantial return in past but being a 10-stock portfolio, the volatility of the product is higher relative to other products but the return to risk ratio is favorable.

Further, although global funds aids diversification in the long-run, in the short-run they may be impacted by short-term currency movement, they may react to global political landscape etc. Simply put, the volatility may be higher as a result of which investor's need to assess each fund depending on his/her investment risk-profile along with aim and investment objective.

And lastly unlike domestic equity funds, foreign funds are taxed as debt funds. Short term capital gains (investing holding period of less than 3 years) are taxed as per the income tax rate of the investors and Long-term capital gains are taxed at 20% after allowing for indexation benefits. However even on a post-tax basis, foreign funds can create higher wealth for investors than domestic funds. One of the benefits of debt taxation over long investment tenures is indexation; indexation can reduce your tax liability substantially.

Keeping all these points in mind, an ideal investment horizon should be minimum 3 year +

Mutual fund investments are subject to market risks, read all scheme-related documents carefully.