Market Overview

A Low-Cost, FAAMNG-Heavy ETF For May

A Low-Cost, FAAMNG-Heavy ETF For May

There's no shortage of commentary and concern regarding the size of the S&P 500's top several names and their influence on the broader market.

Throw in Netflix (NASDAQ: NFLX) further down the list by market value and its clear the FAAMNG stocks are propping the domestic equity market up this year. Those names are Facebook (NASDAQ: FB), Apple (NASDAQ: AAPL), Amazon (NASDAQ: AMZN), Microsoft (NASDAQ: MSFT), Netflix and Google parent Alphabet (NASDAQ: GOOG).

What To Know

Investors looking for broader exposure to the FAAMNG group can consider the Vanguard Mega Cap Growth ETF (NYSE: MGK), CFRA Research's focus ETF for the month of May. The FAAMNG group accounts for six of MGK's top 10 holdings and that's good news because as CFRA Research Director of ETF & Mutual Fund Research Todd Rosenbluth points out, the research firm has Buy or Strong Buy ratings on nine of the Vanguard fund's top 10 holdings.

MGK's top 10 holdings combine for over 52% of the fund's roster.

“While CFRA does not believe past performance is the sole reason to choose an ETF, we do consider short- and intermediate-term relative performance in our star ratings MGK was up 17% in the one-month period ended May 1 and up 11% in the past year,” said Rosenbluth. “This compares quite favorably to the S&P 500 Index.”

Why It's Important

As is the case with other growth ETFs, MGK is heavily allocated to the technology and consumer discretionary sectors. Those groups combine for 65% of the fund's roster. Growth dominated value during the recently deceased bull market, but not much is changing on that front this year despite the March meltdown in equities.

Including Microsoft, CFRA is bullish on three of MGK's marquee components.

“CFRA Equity Analyst John Freeman recently reiterated a Buy recommendation on MSFT and a 12-month target price of $197,” said Rosenbluth. “He viewed quarterly results as quite strong despite Covid-19's negative impact on discretionary spending and on the supply chain for Windows PCs and Surface products as MSFT warned in February. MSFT's quarterly revenue grew 15% and EPS rose by 23% in the past year and both beat consensus forecasts. Freeman.”

What's Next

MGK is attractively priced at 0.07% per year, or $7 on a $10,000 investment. While the fund is trading slightly lower this year, Rosenbluth sees upside potential.

“CFRA finds MGK to offer extremely high reward potential, as the fund earns a score of 99 out of 100, yet the fund is also relatively safe as evidenced by an above-average risk score of 67; in CFRA's scoring system, a higher risk score is better as it connotes lower risk,” he said.

Latest Ratings for NFLX

Oct 2020OppenheimerMaintainsOutperform
Oct 2020WedbushMaintainsUnderperform
Oct 2020BenchmarkMaintainsSell

View More Analyst Ratings for NFLX
View the Latest Analyst Ratings


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