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Thesis

The MicroSectors FANG+ Index -3X Inverse Leveraged ETN (FNGD) is an exchange-traded note that provides three times inverse leveraged participation in the performance of the FANG+ Index, compounded daily. The index is one of the most correlated indexes to technology stocks. Its underlying composition is weighted equally across all stocks, allowing for a more diversified and represented portfolio compared to a market capitalization index such as the S&P 500. There are only ten constituents in the index , all with a weighting of 10%, and the population includes the five basic “FANG” stocks – Facebook (NASDAQ:FB)Apple (NASDAQ:AAPL)Amazon (NASDAQ:AMZN)netflix (NASDAQ:NFLX) and Alphabet (GOOG, GOOGL). Like the Fed increase rates and the discount factors associated with future earnings become more important, we could see further weakness among the tech giants. Surprise profits, like the Meta shock (Facebook) announcement this week can also serve as a catalyst for short-term weakness. The FNGD is a highly leveraged vehicle, therefore a very short-term speculative tool of which you should be aware. While European markets are benefiting from the advent of CFDss to trade stocks with substantial leverage, North American markets must rely on leveraged vehicles such as FNGDs to express such a targeted view with leverage built into the instrument to handy. The FNGD is an exchange-traded note and not an exchange-traded fund, so it is also subject to the risk of default posed by Bank of Montreal. We advise you to use FNGD to trade market dislocations and for very short periods of time given the volatility of its returns. The vehicle was up +60% on a year-to-date basis on January 27, after rallying nearly +40% in the past seven days. A good tool to be aware of as the market revalues ​​technology and the underlying stocks begin to experience significant volatility around their earnings period and impending Fed hikes.

Assets

The NYSE FANG+ index is relatively new to the market, having recently launched:

index details

Index Details (Fund Fact Sheet)

The NYSE FANG+ Index is an equal dollar-weighted index that was created by the NYSE in 2017 to provide exposure to a group of highly traded growth stocks of technology companies:

Constituents of the FNGD index

Constituents (information sheet)

Among the big North American names in the index, one can also find a few Chinese tech names, namely Alibaba (BABA) and Baidu (BIDU) offering some geographic diversity in the tech space. As a reminder, the Chinese tech names present in the index have had a very different trajectory to the rest of the cohort in 2021, having lost a substantial part of their market value.

Performance

On a one-year basis, the ETN is down:

FNGD performance

1 year performance (In search of Alpha)

However, in 2022 and the massive tech underperformance seen this year due to upcoming Fed hikes, the FNGD has projected an exceptional return profile:

FNGD performance year-to-date

YTD Yield (Seeking Alpha)

Volatility is back in the mega-tech stock space, and in 2022 we’re seeing unheard-of one-day moves in names like Meta/Facebook:

FB Stock Performance

Meta Action Performance (Looking for Alpha)

In fact, the recent one-day clearing of Meta ranks as the worst one day value erasure event in stock market history.

The array of Fed rate hikes coupled with earnings disappointments can only create outsized moves in these names, especially following huge option positions retail investors run into the market. Volatility is good for the FNGD, with retail investors now able to take leveraged views on market dislocations in this basket of stocks. Rather than using options positions that can expire worthless and thus cause an investor to lose their premium, an individual can use the built-in 3x leverage in FNGD to achieve a similar payout profile.

Dashboards of the benefits of certain components

Facebook

* had a brutal announcement of results this week

* the stock saw a massive drop of -20%

Apple

* Apple delivered a robust trimester

* Stock rallied significantly last week

Amazon

* Amazon book on its cloud activity

* His stake in Rivian helped profit & loss

netflix

* Netflix showed a slowdown in subscribers last week

* Actions obtained to hit hard

google

* Solid results of this technology name

* Announcement of a stock split

Conclusion

A triple-leveraged product, the FNGD represents a highly speculative short-term trading tool to be familiar with by a retail investor. FNGD is not a buy and hold vehicle, but a fund that can be used for day trading or for very short holding periods (1-15 business days). While European retail investors can rely on CFDs to achieve leveraged returns on certain stocks or baskets of stocks, North American investors must rely on leveraged options and products. An alternative to some options strategies that can see an investor’s premium wiped out completely, FNGD provides an inverse leveraged return to a portfolio of technology stocks. With substantial upside volatility in 2022 on the underlying basket of names and distinctive one-day moves as seen in Meta, FNGD is a good vehicle to consider for a sophisticated investor looking for yield at leverage.