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Which is the best ETF for Amazon, Apple, Facebook, Microsoft and Google momentum?

Aug. 03, 2020 5:41 PM ETInvesco QQQ Trust ETF (QQQ), OGIGQQQ, SPY, IVV, RSP, XLK, XLY, IWF, SPYG, VUG, IUSG, FDN, MGK, VOO, VOOG, VONG, MTUM, IETC, OGIG, XLCBy: David Jackson, SA News Editor78 Comments
  • In case investors don't already know it, the S&P 500's recent returns have been driven by the outperformance of large cap tech stocks Facebook, Amazon, Google, Apple and Microsoft, which we'll call FAGAM. Investors can capture the outperformance of FAGAM with an S&P 500 ETF from StateStreet (NYSEARCA:SPY), iShares (NYSEARCA:IVV) or Vanguard (NYSEARCA:VOO).
  • But in buying the S&P 500, investors are also buying hundreds of underperforming stocks. This is proved by the fact that the equal weight S&P 500 (ETF: RSP) is down year to date, while the market-cap weighted S&P 500 ETFs are up.
  • So what's the best ETF to own the tech leaders FAGAM, without owning underperforming stocks in sectors like Energy, Industrials and Financials?
  • The answer used to be that you could own FAGAM with the Technology Sector ETF (NYSEARCA:XLK). But GICS, the Global Industry Classification Standard, changed its classification to move Google and Facebook from the Technology Sector to the Communications Sector (ETF: XLC), and Amazon from the Technology Sector to the Consumer Discretionary Sector (ETF: XLY). As a result, investors cannot own FAGAM with a single sector ETF.
  • The Invesco QQQ ETF ETF (NASDAQ:QQQ), which tracks the Nasdaq 100, has about 46% of its weighting in FAGAM. Its expense ratio is 0.20%, and its dividend yield is about 0.61%.
  • The iShares Core U.S. Growth ETF (NASDAQ:IUSG) has about 34% of its weighting in FAGAM. Its expense ratio is 0.04%, and its dividend yield is about 1.33%.
  • The iShares Edge MSCI USA Momentum Factor ETF (BATS:MTUM) has about 21% of its weighting in FAGAM. Its expense ratio is 0.15%, and its dividend yield is about 1.23%. MTUM has rules to reduce concentration, and it holds other stocks with strong momentum, such as Tesla, Nvidia, and Netflix.
  • Of the three ETFs, the Invesco QQQ ETF ETF (QQQ) has the by far strongest price increase year to date at about 25%, followed by the iShares Core U.S. Growth ETF (IUSG) at about 14% and the iShares Edge MSCI USA Momentum Factor ETF (MTUM) at about 12%. Not surprisingly, the year to date performance ranking of these ETFs tracks their concentration in FAGAM.
  • All three of these ETFs comfortably beat the S&P 500 ETFs SPY, IVV and VOO, which are up a measly 1.5% year to date. Note that MTUM has the same concentration in FAGAM as the S&P 500 ETFs, but has massively outperformed them.
  • Update: Commenters on this post suggested other non-leveraged ETFs for those looking for high FAGAM concentration, including: the SPDR Portfolio S&P 500 Growth ETF (NYSEARCA:SPYG), the iShares Russell 1000 Growth ETF (NYSEARCA:IWF), the Vanguard Russell 1000 Growth ETF (NASDAQ:VONG), the Vanguard Mega Cap Growth ETF (NYSEARCA:MGK), the Vanguard Growth ETF (NYSEARCA:VUG) and the Vanguard S&P 500 Growth ETF (NYSEARCA:VOOG). Among those suggested, the ETF with the strongest year to date performance is the O'Shares Global Internet Giants ETF (NYSEARCA:OGIG).
  • Momentum investors looking to own a concentrated position in FAGAM don't need an ETF. They can just buy Facebook, Amazon, Google, Apple and Microsoft directly. With zero trading commissions and narrow spreads on these massively traded stocks, the cost to buy and sell them is negligible.
  • If, on the other hand, an investor wants a more diversified portfolio that captures momentum stocks wherever they are over a longer time frame, MTUM offers that. For an excellent description of how momentum has a long track record of beating the market and how the MTUM ETF is structured to reduce downside risk, see 7 Ways To Beat The Market: Momentum, and MTUM: The Curious Case Of The Largest Momentum ETF.

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