Credit: Shutterstock photoTechnology stocks have long been considered high growth businesses with a persistent drive to expand their products and services. Nevertheless, it’s important to remember that being in the right place at the right time is critical to success in this sector.
We have seen a strong momentum divergence in three key areas of the technology sphere this year that have capitalized on fresh consumer-driven trends. By analyzing these industries versus their peers, it becomes apparent that many of these companies may be positioned for continued long-term growth.
Internet
Internet-related stocks have been on fire so far this year and the First Trust Dow Jones Internet Index Fund (FDN) is perking up considerably. This exchange-traded fund tracks 42 stocks that derive at least 50% of their revenue from online activity.
That list includes social media, search provider, online auction, travel, and consumer discretionary stocks. Top holdings involve well-known names such as Facebook Inc (FB), Amazon Inc (AMZN), and The Priceline Group (PCLN).
FDN is the largest internet stock ETF, with total assets of $2.8 billion. In fact, that puts it as high as number four on the list of all technology-related ETFs currently available in the marketplace. This fund charges an annual expense ratio of 0.57% and is rebalanced on a quarterly basis.
So far this year, FDN has gained 11.17% versus 5.63% for the sector benchmark Technology Select Sector SPDR (XLK). In addition, FDN just recently hit new 52-week highs as a number of the top underlying companies reported first quarter earnings that generated favorable reaction in their share price.
Another ETF in this space worth mentioning is the PowerShares NASDAQ Internet Portfolio (PNQI), which tracks a broader basket of 99 holdings and has generated similar returns so far this year.
Social Media
Social media companies are another niche industry within the technology space that has demonstrated considerable strength this year. The Global X Social Media Index ETF (SOCL) tracks a basket of 34 global companies engaged in online efforts to connect social networks, file sharing, and other web-based media efforts.
This ETF is relatively small with $113 million in total assets, yet has amassed a sizable 16.37% return so far in 2015. This considerable strength has been spear headed by the largest China-based social media company Tencent Holdings, which makes up over 12% of SOCL. Chinese stocks have shown considerable momentum and the global reach of SOCL has benefitted from the exposure to this emerging economy.
Other popular names represented in SOCL include: LinkedIn Corp (LNKD), Facebook, and Twitter Inc (TWTR).
Cyber Security
Theft of personal information online has been a hot button topic of late and the relatively new PureFunds ISE Cyber Security ETF (HACK) has been able to successfully capitalize on this trend. HACK debuted in late 2014 and has already amassed over $630 million in total assets. This ETF invests in a basket of 31 stocks focused on eliminating cyber threats for personal, corporate, and government data.
The HACK portfolio is made up of approximately 70% United States and 30% foreign exposure that is distributed through a modified equal-weight index methodology. Top companies include: CyberArk Software (CYBR), InfoBlox Inc (BLOX), and FireEye Inc (FEYE). This ETF charges an expense ratio of 0.75%.
So far this year, HACK has gained 15.16% as continued headlines over security breaches and other threats drive the underlying company share prices higher. As more brands expand their presence and services online, focus on data security will become of paramount importance to consumers.
The Bottom Line
Each of these ETFs offers a unique opportunity to capitalize on a niche segment of the technology sector. Nevertheless, investors should carefully analyze the makeup of the index, fees, and other costs and benefits of placing assets in these focused funds. The concentrated nature of these ETFs can lead to enhanced volatility and hit-or-miss performance given the prevailing market currents.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
