The technology sector has seen pretty choppy earnings reports
come in, with some companies surging higher, and others falling
by the wayside. Once reliable names (such as Microsoft) have been
struggling though, suggesting that new leadership is at hand in
the tech sector.
In particular, investors have seen a great deal of health in
the internet, mobile, and broad social media markets. These
corners of the tech world have posted solid earnings, almost
universally, and have seen soaring stock prices as a result (see
2 Sector ETFs Surging This Earnings Season
Plus, the outlook for many firms in this corner of the market
is impressive, as a number of analysts have raised their
estimates for companies in the sector. In fact, at time of
writing, six of the seven Zacks Industries that are classified as
being in the internet have Zacks Ranks in the top 50%, suggesting
that good trading could be ahead for this space in the weeks
ahead as well.
How to Play
While a look to individual securities could be a way to play
this trend, investors may want to consider internet
instead. This technique allows for diversification across a
number of names, so that you can still play the trend without
worrying about one company blowing up the entire return profile
Create a Diversified Portfolio Using ETFs
Below, we highlight three such internet ETFs which could make
for interesting plays in this type of environment, especially if
current trends continue in the space:
PowerShares NASDAQ Internet Portfolio (
This ETF tracks the Nasdaq Internet Index a benchmark of about
80 companies in the internet segment of the economy. The product
is somewhat popular with investors as it has about $100 million
in assets, though volume is a little light at around 20,000
shares a day.
Internet and mobile makes up about 70% of the portfolio, while
'internet retail' 30% make up the rest of the fund. Large caps do
account for roughly half the assets, while growth stocks account
for roughly 75% of PNQI.
Top holdings include the surging Facebook (
), priceline.com (
), and Amazon.com (
). The top holdings do account for an outsized portion of the
assets though, as nearly 40% of the fund goes to the top five
holdings alone (read
3 ETFs in Focus on Facebook's Earnings Beat
First Trust Dow Jones Internet Index (
This fund follows the Dow Jones Internet Index, a cap weighted
benchmark of internet companies based in the U.S. market. FDN is
pretty popular with investors, as over $1.3 billion is invested
in the product while average daily volume is over 160,000 shares
The Internet and mobile segment accounts for roughly half the
portfolio, followed closely by internet retail at 23% of assets.
The rest of the portfolio is in a variety of related industries
including software, communications, among others.
Although the somewhat sluggish
takes the top spot at 9.3%, the rest of the top five consists of
better performing companies including
. Concentration risk is an issue here too, as just 40 stocks are
in this fund's basket, though it does a decent job of spreading
out capital among the component securities.
Global X Social Media Index ETF (
The real winner this earnings season has arguably been in the
social media market, making a fund like SOCL a top choice. The
product follows a global benchmark of social media firms, though
it hasn't really caught on with investors as evidenced by low AUM
and trading volume.
The product is nearly entirely focused on internet and mobile
applications, though software and internet retail do sneak in as
well. Mid and small caps are also well represented, while U.S.
stocks account for just 50% of assets, leaving big chunks for
China (30%), and Japan (8%).
In terms of top holdings four companies make up at least 10%
of assets including Tencent Holdings, Facebook, Sina Corp (
), and LinkedIn (
). The ETF only holds 28 stocks in total, so there is some
concentrated risk, especially considering the tight sector focus
of this fund (see
Social Media ETF on Fire
While the technology sector has had a rocky earnings season,
there have been pockets of strong growth. This is particularly
the case for the internet segment, as firms in this corner of the
market have led the way higher, and have seen market leading
performances over the past month.
Given some of the ongoing weaknesses in the old guard of
technology, and the positive trends in the internet space,
tilting towards companies in this segment could be the way to go.
While there are a number of ways to accomplish this, a look to
the aforementioned ETFs could be a diversified way to play the
trend across a number of companies, that may be a lower risk
approach to investing in this surging corner of the market.
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FACEBOOK INC-A (FB): Free Stock Analysis
FT-DJ INTRNT IX (FDN): ETF Research Reports
GOOGLE INC-CL A (GOOG): Free Stock Analysis
PWRSH-ND INTRNT (PNQI): ETF Research Reports
GLBL-X SOCL MDA (SOCL): ETF Research Reports
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