What Made Internet ETFs Outperform In The Bull Market

The S&P 500’s bull market has gone past eight years or is rather in a transition phase from policy easing to tightening. So, it becomes more important to look back and see what the truly hot investments were during this crucial time.

While several corners won with Consumer Discretionary taking a special spot, we would like to note that Internet ETFs beat this glamorous zone of the investing world (read: How Consumer ETFs Crushed the S&P 500 Bull Market Run).

The technology sector suffered a lot during 2008–2009 recession. Many workers were laid off then. As a result, it is especially interesting to note how the battered zone broke all barriers. 

Investors should note that pure-value ETFs like Guggenheim S&P 500 Pure Value ETF RPV and Guggenheim S&P SmallCap 600 PureValue ETF RZV topped the ETF world in these eight years, only to make place for PowerShares NASDAQ Internet ETF PNQI in the third spot.

First Trust Dow Jones Internet ETF FDN got the fifth position. No wonder these two funds breezed past the S&P 500 based fund SPDR S&P 500 ETF SPY in all these eight years (up about 310%)(read: The Best Performing ETFs of the Bull Market Might Surprise You).

Thanks to improving developed economies and specifically greater demand from emerging nations like China, India and Brazil, the sector fired on all cylinders in this bull market. The wave of e-commerce is yet to be full-blown in the emerging market and thus offers plenty of untapped opportunities.

Strong performances from some major companies like Netflix NFLX, Yahoo YHOO, Facebook FB and Amazon AMZN, made this run possible. At present, the sector’s earnings picture is also looking up.

Per the Earnings Trends issued on March 1 2017, total earnings for tech companies were up 8.5% in Q4 from the same period last year on 5.4% higher revenues, with 74.6% beating EPS estimates and 72.9% surpassing revenue estimates.

Given the positive trends in the Internet space, a good way to seek entry into the broad tech world is by tilting toward ETFs in this segment. Let’s take a look at Internet ETFs in detail.

PNQI in Focus – Up 583.4%

This fund follows the Nasdaq Internet Index, giving investors exposure to the broad Internet industry. The fund holds about 79 stocks in its basket with AUM of $305.9 million while charging 60 bps in fees per year (see all Technology ETFs here).
In terms of industrial exposure, Internet software and services makes up for 56.1% share in the basket, followed by Internet retail (39.49%). Neflix, Facebook, Priceline and Amazon each takes more-or-less 8% of the fund. PNQI has a Zacks ETF Rank #3 (Hold).

FDN in Focus – Up 581.7%

This is one of the most popular ETFs in the broad tech space with AUM of over $3.87 billion. The 41-stock fund charges 54 bps in fees. From a sector look, information technology accounts for about 70.1% of the portfolio while consumer discretionary makes up over 22%. Facebook and Amazon control the fund, each with over 10% weight. The fund has a Zacks Rank #3.

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Amazon.com, Inc. (AMZN): Free Stock Analysis Report
 
Netflix, Inc. (NFLX): Free Stock Analysis Report
 
Yahoo! Inc. (YHOO): Free Stock Analysis Report
 
SPDR-SP 500 TR (SPY): ETF Research Reports
 
Facebook, Inc. (FB): Free Stock Analysis Report
 
PWRSH-ND INTRNT (PNQI): ETF Research Reports
 
FT-DJ INTRNT IX (FDN): ETF Research Reports
 
GUGG-SP 600 PV (RZV): ETF Research Reports
 
GUGG-SP 500 PV (RPV): ETF Research Reports
 
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