Exchange traded funds holdings richly valued but soaring Internet stocks were among 2013’s top performers. A risk-off tenor to start 2014 and concerns about the aforementioned valuations, among other factors, have sparked some lethargy in Internet ETFs in the new year.
The First Trust Dow Jones Internet Index Fund (NYSEArca: FDN), the largest Internet ETF, is flat to start the new year while the rival PowerShares NASDAQ Internet Portfolio (NasdaqGS: PNQI) is off half a percent. Only the Global X Social Media Index ETF (NasdaqGS: SOCL) has been somewhat impressive and although SOCL closed slightly lower Thursday, that was the second consecutive day the ETF touched a new all-time high. [Twitter Lags Social Media ETF]
Despite last year’s strong performances and optimism for a sequel this year, not everyone on Wall Street is being wooed by Internet stocks and ETFs. Earlier this week, S&P Capital IQ rated PNQI and SOCL underweight while assigning a tepid marketweight rating to FDN. The research firm also has a strong sell rating on Pandora (NYSE: P), one of SOCL’s top-10 holdings. [Not Everyone is in Love With Internet ETFs]
Not all analysts share that less-than-enthusiastic view on the Internet space. For example, Bank of America Merrill Lynch sees more upside to come for some of the Internet sub-industry’s biggest names and at least one of the aforementioned ETFs is excellent way to make a diversified bet on the bank’s call.
Based on Thursday’s closed around $401, investors could see upside of more than 10% if Merrill Lynch’s $445 price target on Amazon (NasdaqGM: AMZN), one of analysts’ favorite Internet names, proves accurate. Merrill Lynch “also believe eBay (NasdaqGM: EBAY) benefited from heavy promotions, seller incentives, scarcity of key items at other online and offline retailers and large PayPal mobile volumes,” writes Lee Jackson of 24/7 Wall Street.