Finding 2040’s FANMAG: Thematic ETFs For Long-Term Portfolios

I’ve written critically of well-established mega-ETFs that are all in on FANMAG — Facebook (FB), Amazon (AMZN), Netflix (NFLX), Microsoft (MSFT), Apple (AAPL) and Google (GOOGL) — and similar kinds of popular stocks, not necessarily because I have anything against the stocks, all of which I have exposure to via ETFs I own, but because the love is overblown and more a function of mathematical inertia (market cap weighting that exaggerates the impact of strong stock performance plus) than human judgment. Here’s another concern: FANMAG is about the present. Do we really know — REALLY! — that these companies will be similarly admired five, 10, or 20 years from now? Growth oriented and young individuals and advisers with such clients may want to give thought to positioning portfolios for the tomorrow’s FANMAG, something that can be done with thematic ETFs.

© Can Stock Photo / bernad

Are You up On The Latest?

While FANMAG is hardly 2020s answer the to the rustbelt of the 1980s, it’s not exactly Shangri-La either. Consider:

  • Google’s advertising business is getting slammed. Yes, the coronavirus economic shock is a factor. But even beyond this, wehave to remember, as I wrote years ago when I covered broadcasting stocks at Value Line, “just because it doesn’t have a smokestack doesn’t mean it isn’t cyclical.” (Which specific report? I don’t remembers.) As hip as Google may be, its also cyclical.
  • The 6/30/20 cover story in The Economist is a must read for anybody who cares about Amazon. No, the sky is not falling and actually its still pretty high up there. But Jeff Bezos and his management team are finding it quite a challenge to keep it aloft, given how much tied the company’s fortunes are to cloud services, as opposed to the e-retailing for which it is most famous.
  • Tom Brady chose to bolt from the New England Patriots but eSports superstar Ninja has no choice about becoming a free agent: Mixer, the Microsoft-owned streaming platform that lured him from Amazon-owned Twitch is being shuttered as Microsoft decides to hitch its streaming wagon to Facebook’s horse.
  • Has anybody noticed how many original programs Netflix is bankrolling — and cancelling — and how competition keeps on growing? And, of course, we have Apple’s ongoing scramble to deal with the fact that new iPhone models aren’t quite what they once were. Just sayin’ . . . .

No, we’re not looking down to the bottom of a cliff. The companies are fine. In fact, some are benefiting from problems challenges being experienced by others. Advertising is still growing at Facebook and Amazon. Among Ninja’s potential new platform choices are his old home at Amazon’s Twitch and Google’s You-Tube streaming platform. Netflix’s rivals include  Amazon, Apple, and Disney (DIS), not quite a FANMAG, but close to it. And no, I’m not selling any of my ETFs that own these stocks.

It’s just that these companies fall short of perfection. There are questions that need to be addressed.

Actually, that’s normal. Nothing is perfect and every business has questions that need to be addressed. But when companies are so extremely admired and extremely weighted in what are supposed to be passive index funds, it seems awfully hard to argue that these should be the primary engines of any portfolio that’s positioned for long-term growth.

Tuning In To The Future

I don’t know what the FANMAG of 2040 will look like. I don’t even know what acronym will be used. SVRW? Oops . . . they’ll need to find at least one company whose name begins with a vowel. SVROW? Still doesn’t roll off the tongue. VROW , , , as long as we can find popular companies for each letter. Who said it was easy to start a fad?

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Disclosure: Long ARKF, PAWZ.

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William K. 4 months ago Member's comment

Certainly a Quite interesting collection of concepts here, and as cautioned, not to be taken as detailed advice.

And still that old caution is correct, "Past performance does not guarantee future performance." The clear exception is to never bet on a racehorse that always comes in last.