5 funds with FAANGs
Here's what Morningstar analysts think of these mostly medal-rated funds that hold exposures to Facebook, Amazon, Apple, Netflix and Google parent Alphabet.
Here's what Morningstar analysts think of these medal-rated funds that hold exposures to market behemoths Facebook, Amazon, Apple, Netflix and Google parent Alphabet--collectively known as the FAANGs.
Holding a gold-medal rating from Morningstar, Greencape High Conviction (14653) has a 1.5 per cent weighting to Facebook.
The fund's portfolio managers follow an active bottom-up approach to stock-picking, selecting from a universe that includes S&P/ASX 100 companies and those outside this range.
While it focuses primarily on Australian companies, it also has an international exposure of around 7 per cent. With a growth-leaning portfolio of between 35 and 50 stocks, Morningstar manager research analyst Ross MacMillan says its "diversification is appropriate, despite its high-conviction nature".
Unlike some other funds that hold Facebook, Greencape doesn’t have a specific focus on technology as a sector, which isn't even within its top five sectors of financial services, materials, healthcare, real estate and consumer defensive.
"[Portfolio manager] David Pace…avoids undue sector bets by focusing on stock-specific opportunities rather than thematic plays," MacMillan says.
He describes the strategy as one which could serve as a "suitable core holding, and could serve as more than half of the exposure being filled".
Google (Alphabet)
Orbis Global Equity Fund (41069) holds a silver-medal analyst rating, with a 2 per cent exposure to Alphabet.
Reliant on bottom-up analysis, the team maintains a database of around 4,000 stocks from which it selects portfolio holdings.
"Bottom-up analysis begins with eliminating those stocks that have fallen out of favour for reasons that the team believes are justified.
"Those that pass the pre-screening are subject to intensive qualitative research, with a particular focus on those firms with an ability to generate superior growth in cash flow, earnings, and dividends," says Morningstar equity analyst, Andrew Miles.
It is almost entirely focused on international companies, with around 100 large positions, but 80 per cent of the overall assets concentrated in the top 50 names the team likes.
"They pay little attention to the index, and the fund can deviate significantly from the index because of the contrarian nature of the approach," Miles says.
Technology comprises the highest proportion of the portfolio, representing around 23 per cent, followed by 17 percent in financial services, 15 per cent in industrials, 12 per cent in cyclicals and 9 per cent in healthcare.
Netflix
Bronze-medallist, T. Rowe Price Global Equity (14479) holds just under 1 per cent exposure to video-streaming giant Netflix.
The portfolio is a diversified mix of around 130 stocks, which also often have "macro tailwinds" such as emerging markets, says Morningstar senior equity analyst, Matthew Wilkinson.
"Being distinctly a growth fund, the typical growth metrics are some of the highest from the funds we cover as are the price metrics," he says.
Entirely focused in international equities, has a considerable technology weighting of around 18 percent, along with 23 per cent in financials, 19 per cent cyclicals, 12 per cent healthcare and 9 per cent industrials.
"The diversification and detailed fundamental research makes this strategy a suitable core piece of an investor's allocation to global equities," Wilkinson says.
Apple
Gold-medallist fund, Franklin Global Growth (16740) has a 2.6 per cent exposure to technology behemoth, Apple.
According to Morningstar analyst, Anshula Venkataraman, "technology, financials, and industrials typically weigh heavy in the portfolio, though company fundamentals drive stock selection".
She says the fund has a mid-cap bias that can provide opportunity to pick stocks with high growth rates, with the added downside risk, but also more potential on the upside.
"But over the long term, this strategy has delivered outstanding results versus peers. The fund also fares well on a risk-adjusted basis, which stands as a testament to the team’s preference for sustainable business models and economic diversification."
"Given the fund’s concentration, stock-specific results typically drive returns," Venkataraman says, pointing out the fund lagged in 2016, hurt by its underweighting in materials and concentration on growth versus value stocks.
Amazon
Zurich Investments Global Thematic Share (4951), rated a bronze-medal by Morningstar, holds just over 1 per cent weighting to Jeff Bezos' online retailer, Amazon.
Morningstar's confidence has flagged a little following its asset outflows of recent years--down to $3.2 billion globally from its 2007 peak of $25 billion, and its Australian trust down to $700 million from its $1.9 billion height. "But there are good reasons to stay invested, and the combination of experienced team and tested process gives us conviction the fund can bounce back," says senior analyst, Kunal Kotwal.
The team uses a combination of top-down and bottom-up research, with eight to 12 themes, "designed to be broadly uncorrelated, thereby allowing the portfolio the potential to perform across all stages of the market cycle".
As at September 2017, the fund was overweight information technology, materials, healthcare and energy. Apple, Microsoft, Amazon, Facebook and JP Morgan Chase are the top five index holdings.
"We feel this strategy is a core international-equities holding for investors, that exhibits a lower level of volatility than the index," Kotwal says.
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Glenn Freeman is a senior editor at Morningstar.
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