Though technology stocks have shown a nice comeback with most
stocks gaining strongly starting this year, the sector has been hit
lately as investors are dumping stocks due to profit taking and
concerns over the Ukraine crisis.
Further, the technology stocks look expensive at current levels and
the prospect of faster-than-expected monetary tightening in the
recent FOMC meeting has compelled investors to pull out capital
from this high growth and high beta sector.
Currently, Internet is lagging the broad tech sector as most of the
stocks, such as Facebook (
), Twitter (
), Netflix (
), Yahoo (
), Amazon (
) and Linkedln (
), have plummeted double digits from their recent record levels,
primarily thanks to lofty valuation (read:
Buy These 2 Tech ETFs on NASDAQ Sell-Off
Further, five of the six Zacks Industries that are classified as
being in the Internet have negative outlook at present, suggesting
rough trading for this segment in the coming days. Though the
near-term outlook is disappointing, long-term trends in the
Internet space appear promising.
This is especially true, as this corner of the broad technology
space has enjoyed a strong rally over the past five years, gaining
more than 300%. This trend is likely to continue this year thanks
to growing Internet usage, rising global IT spending, improving
overseas demand, technology innovation and surging popularity of
e-commerce that will likely drive this space to the new age.
Given this, risk tolerant long-term investors may want to consider
this recent slump a buying opportunity, should they have the
patience for extreme volatility. For those investors, we have
highlighted two Internet ETFs that could be excellent picks given
that the duo has a Zacks ETF Rank of 2 or 'Buy' rating, suggesting
that it will likely outperform the broad market index over a
one-year period (see:
all the Technology ETFs here
First Trust Dow Jones Internet Index (
This is one of the most popular and liquid ETFs in the broad tech
space with AUM of nearly $2.3 billion and average daily volume of
more than 387,000 shares. The fund tracks the Dow Jones Internet
Composite Index and charges 57 bps in fees per year.
In total, the fund holds a small basket of 41 securities with
) as the top firm with 10.04% of assets. Amazon and Facebook occupy
the next two positions at 7.30% and 6.57%, respectively. The fund
is tilted toward large caps at 62% while mid and small caps take
the reminder. Also, the ETF puts more focus on growth stocks with
From a sector look, Internet mobile applications account for more
than half of the portfolio while Internet retail and software &
programing receive double-digit exposure. The ETF lost nearly 6%
over the past one month.
PowerShares Nasdaq Internet Portfolio (
This fund follows the Nasdaq Internet Index, giving investors
exposure to the largest and liquid stocks in the broad Internet
industry. The ETF holds 99 stocks in its basket with AUM of $390.8
million while charging 60 bps in fees per year. PNQI trades in
moderate volume of less than 80,000 shares a day.
In terms of holdings, AMZN, eBay (
) and GOOG occupy the top three holdings with 8% of assets each.
The fund is titled toward large cap and growth stocks, as these
make up for respectively three-fifths and three-fourths of the
5 Best Performing ETFs of the 5 Year Bull Run
In terms of industrial exposure, Internet mobile applications make
up for about 69% of assets, followed by Internet retail and
software & programing. PNQI is down over 6% over the past one
China Internet Market is Also Booming
Though Internet penetration is very low in China compared to the
U.S., awareness and importance of the Internet is spreading rapidly
among the Chinese. This is primarily thanks to surging demand for
e-retail, growing broadband usage and technological advancements.
Further, people are embracing e-commerce activities and PC sales
are increasing, thereby fueling growth in this space.
In order to tap this rapidly growing Chinese Internet market,
investors have only one option at their disposal -
KraneShares CSI China Internet Fund (
. This ETF provides concentrated exposure to the Chinese Internet
market by tracking the CSI China Overseas Internet Index (read:
China Internet ETF: The Best Choice in the
The product has newly debuted in the China ETF space, having
amassed an impressive $78.2 million in AUM in just eight months.
Holding 28 stocks, the product allocates a combined 26.14% of
assets to Tencet Holdings (
), QIHO 360 Technology (
) and Baidu.com (
The fund is slightly expensive, charging 68 bps in fees per year.
Additionally, it trades in a moderate volume of over 58,000 shares
a day, ensuring extra cost in the form of bid/ask spread. KWEB
added just 0.6% in the past one month.
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AMAZON.COM INC (AMZN): Free Stock Analysis
FACEBOOK INC-A (FB): Free Stock Analysis Report
FT-DJ INTRNT IX (FDN): ETF Research Reports
GOOGLE INC-CL A (GOOG): Free Stock Analysis
KRANS-C CHN INT (KWEB): ETF Research Reports
NETFLIX INC (NFLX): Free Stock Analysis Report
PWRSH-ND INTRNT (PNQI): ETF Research Reports
TWITTER INC (TWTR): Free Stock Analysis Report
YAHOO! INC (YHOO): Free Stock Analysis Report
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