Investing in Internet companies is interesting given the tremendous growth potential. The use of the Internet is rapidly expanding as it enables convenient, fast and secure connection between consumers and suppliers. The use of the Internet has attracted attention not only in developed countries but also in developing countries such as China, which currently claims to have the largest Internet user base.
Internet funds have been performing well in the past two years. For example, Fast Trust Internet ETF (FDN) increased by 145%, more than three times that of 45% S & P 500.
Although Internet funds are regarded as sector funds, we actually provide exposures to companies covering various sectors.
Internet companies fall into two broad categories. In other words, it makes it possible for the Internet to generate profits and it is possible to generate profits using the Internet.
Internet activists are usually in the information technology field. These include companies such as Cisco Systems (CSCO) and content distribution networks such as Akamai Technologies (AKAM).
Internet users often come from other fields such as consumer wisdom, financial services, or healthcare. Examples of such companies are as follows.
* Amazon.com (AMZN) is the largest online retailer selling various items from books to shoes.
* Online movie rental subscription provider, Netflix (NFLX)
* priceline.com (PCLN), a company that provides services related to online travel
* TD AMERITRADE (AMTD), online securities broker and financial services company
* WebMD Health (WBMD), provider of online medical information for consumers and medical professionals
In addition, there are giants that enable the Internet with the search functions they provide like Google (GOOG) and Microsoft (MSFT), and connect customers to business through their advertising network.
There are three families that offer listed companies to invest in the Internet: First Trust, Invesco PowerShares, and Merrill Lynch.
First Trust Dow Jones Internet ETF (FDN)
FDN aims to keep track of the price of about 40 Internet companies included in the Dow Jones Internet Index and to create its performance. Funds will be invested in companies earning at least 50% of their revenue online. The top ten contains famous names such as Google, Amazon.com, eBay (EBAY). Funds are relatively concentrated, with top 10 ownership accounting for over 50% of portfolio assets.
PowerShares Nasdaq Internet Portfolio (PNQI)
PNQI tracks price performance and results of more than 50 Internet companies listed in the NASDAQ Internet Index. Google, Yahoo! (YHOO) and Amazon.com. The fund also concentrates on top 10 ownership that accounts for about 60% of portfolio assets. An interesting feature of this fund is that Chinese companies Baidu (BIDU), SINA (SINA), and Sohu.com (SOHU) account for about 12% of portfolio assets.
Merrill Lynch Internet HOLDR (HHH)
Bank of America Merrill Lynch HOLDR offers four investment products related to the Internet: HOLDR Internet (HHH), HOLDR Internet Architecture (IAH), Internet HOLDR Infrastructure (IIH), and B2B Internet HOLDR.
HOLDR (an acronym for Hory Company Depository Receipts) is traded like stocks on stock exchanges, but it does not track the underlying index. Ownership includes shares of HOLDR, which began in 1999 and 2000. Over the years, the number of ownership decreased due to the withdrawal or acquisition of several companies. HOLDR Internet B2B has only 2 shares and HOLDR Internet infrastructure has less than 10 shares. An important omission of all HOLDR Merrill Lynch is the Google industry title.
Of these product lines, HOLDR Internet (HHH) deserves consideration. Internet ownership of 13 HOLDR probably will not give investors the same level of risk concentration as other HOLDRs. Investors at HOLDR Internet (HHH) need to be aware that Amazon.com makes up over 40% of this investment product.