Technology had been the best performing sector in 2012 and it
easily outperformed the S&P 500 index. Starting in January,
however, this strength is apparently fading, with a big drop in
Apple's shares underscoring the broad weakness in the large cap
technology ETF market (read:
3 Apple Proof ETFs
Basically, the underperformers are from the large cap focused
tech funds like
Select Sector SPDR Technology (
iShares Dow Jones US Technology (
Vanguard Information Technology Index Fund (
. Software and networking funds are also on the bottom list.
Still, it is not true to say that all the tech funds are
5 Sector ETFs Surging to Start 2013
). There are still some of them that are surging and are not
affected by the Apple issues or the dull performances by many
large caps. These include social media, broad internet and
emerging market technology funds that have outpaced broad market
Below, we highlighted three top ETF performers which have not
only managed to stay over water, but have provided returns of
high single digits in the first month of 2013. These are expected
to continue with their bull run even with the sluggish
performance overall of the space.
Guggenheim China Technology ETF (
Launched in December 2009, this fund targets the China market
and is leading the tech sector, though it has failed to attract
investors with just $19.6 million in AUM. It seeks to replicate
the price and performance of the AlphaShares China Technology
Index, before fees and expenses.
The ETF is highly concentrated on its top ten holdings, taking
up about 61% of the assets, suggesting that the return of the
fund is much more dependent on these companies. Despite its heavy
reliance, the fund generated double digits return in the first
month of the year (read:
Why Earnings are Key for the Tech ETF XLK
CQQQ also pays a good 1.74% in annual dividends. This is
because it has lesser focus on large caps (26%) and a large part
of it is allocated toward mid and small caps securities.
Within the sector, Internet and mobile applications occupy the
top position in the basket with 41% share while electronic
components, communications equipment and semiconductors rounded
to top four. The product holds 37 securities in the basket, of
which three-fourths belong to mainland China companies and the
rest goes toward Hong Kong.
The fund is the high cost choice in the space, charging a fee
of 70 bps a year. Additionally, investors have to pay an extra
cost in the form of a wide bid/ask spread due to its illiquid
nature. CQQQ has a Zacks Rank #3 or 'Hold' rating.
ETRACS Next Generation Internet ETN (
This note tracks the UBS Next Generation Internet Index and
provides exposure to the next generation Internet firms,
generally consisting of social networking, Internet software, and
Internet service stocks.
The product consists of 22 stocks and the benchmark imposes a
three-year age limit on holdings, ensuring that constituent
securities remain extremely relevant and at the forefront of the
In terms of individual holdings, the top spots are dominated
by developed market companies from the U.S. and Europe. Three
companies - like LinkedIn and Facebook - are the only ones to
make up at least 10% of the EIPO, ensuring a relatively high
level of concentration. In fact, the top ten holdings account for
nearly two-thirds of the total assets (read:
New Leadership in the Tech ETF Space?
The ETF is heavily skewed towards small securities; large caps
make up just 10% of the total assets. Meanwhile, from a country
perspective, the U.S. accounts for close to two-thirds of its
assets, while China (15%), Russia (10%), the UK (8%), and
Australia (3%) round out the rest.
The fund has seen a solid run in the first month of the year,
adding more than 9%. However, volume and assets are again low for
this fund, ensuring a wide bid/ask spread along with a relatively
high expense ratio of 0.65%, thus increasing the total cost for
First Trust Dow Jones Internet Index Fund (
The third solid ETF performer lies in the Internet segment of
the broad tech sector (read:
Zacks Buy Ranked Internet ETF: FDN
). Launched in June 2006, this ETF tracks the Dow Jones Internet
Index, before fees and expenses.
The index measures the performance of companies that primarily
earn at least half of their revenues from the Internet business
and have a trading history of at least three months.
Holding 41 securities, the fund invests half of its assets in
top ten firms with Internet and mobile application as the top
sector within the tech. Google (
), Amazon.com (
) and eBay (
) are the top three elements in the basket and make up for a
combined 23% share.
Other firms hold no more than 5% of FDN. While large cap
accounts for 55% of the assets, mid and small cap take the
remaining portion in the basket (see more
The product has delivered about 9% returns over one month but
yields very a meager 0.03% in annual dividends. It has managed
assets worth $835.7 million so far in the year (as of January
31), charging investors 60 bps in fees per year. Trading in
volume of more than 160,000 shares per day, the fund has a
relatively tight bid/ask spread.
Currently, FDN has a Zacks Rank #1 or 'Strong Buy' rating.
This suggests that this product is expected to perform well over
the long haul, when compared to the other funds in the
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GUGG-CHINA TEC (CQQQ): ETF Research Reports
E-TRC NGI (EIPO): ETF Research Reports
FT-DJ INTRNT IX (FDN): ETF Research Reports
ISHARS-DJ TECH (IYW): ETF Research Reports
SPDR-TECH SELS (XLK): ETF Research Reports
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