Dedicated Internet equity exchange traded funds are rebounding in fine form this year after being market laggards in 2015 and that could be confirmation of two things.
First, investors are displaying a willingness to embrace cyclical, higher beta fare even as the bull market in U.S. stocks ages. Second, the Nasdaq Composite’s return to heights last seen during the technology bubble is likely and can now be measured in a matter of days.
Year-to-date, the PowerShares NASDAQ Internet Portfolio (NasdaqGS: PNQI) and the First Trust Dow Jones Internet Index Fund (NYSEArca: FDN) are up an average of 6.8%. Those impressive performances came after FDN rose just 2% last year while PNQI traded slightly lower as the PowerShares QQQ (NasdaqGM: QQQ), the NASDAQ-100 tracking ETF, surged 19.2%.
To this point, our late 2014 prediction that Internet ETFs would rebound this year has been vindicated, helped in large part by a resurgent Amazon (NasdaqGS: AMZN) and a soaring Netflix (NasdaqGS: NFLX). Shares of Netflix have surged 41% this year while Amazon has climbed 28%. Consumers are increasingly turning to online avenues to cover their shopping needs, potentially supporting e-commerce companies. As the U.S. economy expands, employment rate improves and gasoline prices remain depressed, U.S. consumers will likely increase spending. [Internet ETFs Could Surprise in 2015]
Last month, Netflix said fourth-quarter earnings jumped to a record of $83.4 million, or $1.35 per share, on quarterly subscriber growth of 4.3 million. That was record quarterly subscriber growth for the company and for all of 2014, Netflix added 13 million subscribers around the world. [Netflix Lifts These ETFs]
Amazon is PNQI’s largest holding at a weight of 9% while Netflix has a weight of almost 5.4% in the ETF. FDN allocates a combined 13% of its weight to those stocks. Importantly, FDN’s technicals are confirming more upside could be on the way for Internet ETFs.
“Looking shorter-term, here is a daily candlestick chart showing prices, not only breaking out above the upper of the two converging trend lines since the all-time highs early last year, but also above overhead supply since September,” notes J.C. Parets of Eagle Bay Capital.
Chart Courtesy: J.C. Parets, Eagle Bay Capital
FDN, which has added $193 million in news assets, resides 3.3% below its 52-week. PNQI has further to run to get there as that ETF is 8% below its previous 52-week high.