FANG Facilitated This Year's Best Tech ETF

At this late stage of 2015, investors have heard plenty about this year's hottest investing acronym – FANG for Facebook Inc. FB, Amazon.com Inc. AMZN, Netflix Inc. NFLX and Google parent Alphabet Inc. GOOG.

That quartet of stocks are found among the best-performing S&P 500 and NASDAQ Composite names this year. So strong have been the performances of the FANG quartet, particularly Amazon and Netflix, it has been enough to make investors wish there is a dedicated FANG exchange traded fund. Such a fund does not exist, but the First Trust Dow Jones Internet Index Fund FDN serves as an adequate proxy.

Robust exposure to the FANG stocks has helped elevate FDN to a 23.1 percent year-to-date return and that is good enough to make the ETF 2015's best technology ETF. And when it comes to FANG exposure, FDN has it in spades, trumping rival Internet ETFs when it comes to its combined weight to this year's sexiest acronym. Nearly 50 ETFs feature Google exposure, but FDN has one of the largest weights to the largest Internet search provider.

The $4.9 billion FDN, which debuted in June 2006, holds 42 stocks. In order, Amazon, Facebook, the two share classes of Alphabet and Netflix combine for 35.2 percent of FDN's weight, according to First Trust data. 

Embracing the FANG stocks, on an individual basis, does not come cheap from a valuation perspective. For example, the always richly valued Amazon trades at 122 times 2016 earnings making Facebook at 37 times next year's earnings look inexpensive. Those high price-to-earnings ratios translate to a P/E north of 43 and a price-to-book ratio of almost 4.6 for FDN.

Earlier this month, Benzinga reported Bank of America Merrill Lynch analyst Justin Post mentioned the strengths of Facebook as its strong engagement, with around 65 percent users accessing the platform daily, its multi-app mobile position, and the monetization opportunity, with the platform capturing 8 percent of total media time. Post added that Facebook’s valuation is “more attractive and defensible” than social media peers. 

The price objective has been raised to reflect a rolling forward of the basis to the 2017EPS estimate. The analyst mentioned that the upside case is $145 and downside case is $80. Facebook is FDN's second-largest holding behind Amazon at a weight of nearly 10.1 percent.