ETF Spotlight: Internet Sector

January 11th at 3:04pm by Tom Lydon

Last year Internet stocks and exchange traded funds managed to post gains despite the Facebook (NasdaqGS: FB) IPO flop early on. The S&P 1500 Internet Retail sub-industry gained 43.5% while the Internet Software and Services sub-industry gained 22.2%.

“The story for the internet industry has certainly not been much different, though as of late it has comparatively fared better than most of its technology sector counterpart industries. Furthermore, the industry has come a long way from the dark days of the dotcom burst which shook its very foundations,” according to Zacks Equity Research.

The First Trust Dow Jones Internet Index Fund (NYSEArca: FDN) gained  17.9% in 2012 while the PowerShares NASDAQ Internet Portfolio (NasdaqGM: PNQI) gave back 20.1%. Both ETFs outperformed the S&P 500, however, they underperformed the associated benchmarks, reports S&P Capital in a recent note. [Facebook to Join Nasdaq-100, Tech Indices]

The ratings company weights both of the ETF “Underweight” and does not have a “Strong Buy” or “Buy” opinion for any of the single stocks with the top holdings of FDN. A closer look at both ETFs presents valuable advantages for investors who seek exposure to certain stocks, while gaining portfolio diversification.

The recent all-time high that Amazon (NasdaqGS: AMZN) stock set earlier this week has helped bolster any ETFs that allocate to the online retailer. The upward momentum appears to have staying power and the company stock gained 19.3%. [ETF Chart of the Day: Home Construction]

FDN does trade for about $40, and while the price tag should not be the deciding factor, the high quality stocks in the top holdings could be convincing. Decent weightings to Amazon, Google (NasdaqGS: GOOG) and Priceline (NasdaqGS: PCLN) make the ETF well worth another look, as these companies compose about 20% of FDN’s weight.

Furthermore, over the past 30 and 90 days, FDN has outperformed Amazon and Priceline. Over the past three months, FDN has outpaced Google, its largest holding, reports ETF Professor for Benzinga. [Netflix Sell-Off Weighs on Internet ETFs]

PNQI has managed to outperform FDN, gaining 8.2% last month. Amazon has helped PNQI gain about 13% over the past six months as it makes up about 8% of the portfolio. Google and Priceline are also featured in the top holdings, but the inclusion of Baidu (NasdaqGS: BIDU), a Chinese search company, has bolstered the ETF’s performance.

PowerShares NASDAQ Internet Portfolio

ETF, PNQI, FDN, Internet,

Tisha Guerrero contributed to this article.

The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.

Tickers

FDN PNQI