The recent market correction has brought down the valuations of many technology giants. Bargain hunters may jump on the more attractively priced group with a tech-related exchange traded fund.
For instance, the First Trust Dow Jones Internet Index Fund (NYSEArca: FDN) tracks companies that generate at least 50% of annual sales and revenues from the Internet, with a focus on large and active firms.
FDN has held up surprisingly well in the recent market volatility, only falling off 0.4% over the past week, and it was one of the first few ETFs to shift above its 200-day moving average on the bounce back. Year-to-date, FDN has gained 12.3%. [Potential ETF Opportunities in Overdone Stock Market Correction]
Facebook (NasdaqGS: FB), Amazon (NasdaqGS: AMZN), Google (NasdaqGS: GOOG) and Netflix (NasdaqGS: NFLX) were among the top tech stocks to buy back after the market plunge, reports Anita Balakrishnan for CNBC.
Youssef Squali, Internet company analyst at Cantor Fitzgerald, also argued that travel-booking company Priceline (NasdaqGS: PCLN) may also be a good catch as the travel market shows no signs of weakening.
The correction has provided long-term investors with a great entry point to acquire many companies on the cheap.
“There have been a number of people that have stayed on the sidelines, and this pullback has given them an opportunity to jump in,” Squali said. “People are looking at these as good opportunities, probably great opportunities if you look at the next couple of years.”
FDN includes large allocations to many of these big Internet names. Among its top holdings, AMZN is 10.6% of FDN’s portfolio, FB is 10.1%, PCLN is 6.0%, GOOGL is 5.9%, GOOG is 5.7% and NFLX is 5.0%.
“This ETF brings together all such firms into a single fund,” according to Bob Goldsborough, manager research analyst at Morningstar. “One thing that these firms all have in common is that competition is very intense. However, the return drivers for Internet companies can vary. The success of some firms here is driven by advertising growth, while others will succeed through increased user adoption or margin improvement. Broadly, though, most of these firms are benefiting from increased online ad spending, increased time spent online, and aggregation of consumer data.”
FDN is missing some prominent tech names due to its targeted strategy. For instance, big names like Apple (NasdaqGS: AAPL) and Microsoft (NasdaqGS: MSFT), which do not have a big Internet revenue stream, are not included in the ETF’s portfolio.
First Trust Dow Jones Internet Index Fund
For more information on the tech sector, visit our technology category.
Max Chen contributed to this article.