Internet ETFs

In the technology sector, exchange traded funds that track internet-based companies have been outperforming the broader market, with Yahoo (NasdaqGS: YHOO) powering the area.

The First Trust Dow Jones Internet Index Fund (NYSEArca: FDN) has increased 25.8% year-to-date and the PowerShares NASDAQ Internet Portfolio (Nasdaq GIDS: PNQI) is up 25.2%. In comparison, the NASDAQ Composite Index has gained 20.0% so far this year. [Nasdaq, Tech ETFs in the Groove]

FDN holds stocks that generate at least 50% of their revenue from the internet and selects stocks based on three-month average market capitalization and a three month average share volume criteria. PNQI tracks a market-cap-weighted basket of internet companies.

“More than three fourths of all Americans use the Internet,” Morningstar analyst Robert Goldsborough said in a profile of FDN. “In many respects, the fortunes of bellwether Internet names like Google, Amazon, eBay, and Yahoo are bound to drive the success or failure of this ETF.”

Yahoo, which makes up 4.3% of FDN and 3.8% of PNQI, rose to a five-year high after announcing robust returns from its 24% stake in the Chinese Alibaba Group, reports Douglas MacMillan for Bloomberg.

“Alibaba is showing a lot of operating leverage,” Sameet Sinha, an analyst at B. Riley & Co., said in the Bloomberg article. “They built this huge marketplace in China and they started charging people. All of a sudden this is falling straight to the bottom line.”