Investors looking for stellar performance among industry exchange-traded funds this year will find plenty in the realm of internet ETFs. Year-to-date, four of the top 10 non-leveraged ETFs are internet ETFs.
Underscoring the strength in internet stocks is this nugget: the First Trust DJ Internet Index Fund (ETF) (NYSEARCA:FDN), the largest U.S. internet ETF, is higher by 26% year-to-date and it does not rank among the top 10 industry or sector funds.
That despite FDN allocating about a third of its weight to the FANG quartet of Facebook Inc (NASDAQ:FB), Amazon.com, Inc. (NASDAQ:AMZN), Netflix, Inc. (NASDAQ:NFLX) and Google parent Alphabet Inc (NASDAQ:GOOG NASDAQ:GOOGL).
The status of the First Trust Dow Jones Internet ETF as a premier, cost-effective avenue for FANG and internet stock exposure has prompted investors to pour more than $177 million into the ETF this year. That brings FDN’s assets under management to north of $4.6 billion, making it one of the largest technology ETFs on the market.
While FDN has brand recognition among internet ETFs, other funds offer different, though still enticing ways of tapping the boom in internet stocks. Here are three alternatives.
Internet ETFs to Buy: ARK Web x.0 ETF (ARKW)
Expense Ratio: 0.75% per year, or $75 annually on a $10,000 investment
One thing that may catch investors by surprise regarding the ARK Web x.0 ETF (NYSEARCA:ARKW) is its 0.75% annual fee.
This Internet ETF is actively managed, not an index fund, which explains the higher expense ratio. However, ARKW is making it worthwhile for investors to pay up a bit on fees. The ETF is up 49% year-to-date, making it one of the best-performing non-leveraged ETFs of any type.
By not being a traditional index fund, the ARK Web x.0 ETF’s management team can overweight or underweight various internet stocks as it sees fit. Additionally, ARKW’s roster does not need to be confined to internet stocks. Just look at the ETF’s second-largest holding, which is the Bitcoin Investment Trust (OTCMKTS:GBTC). So in addition to being a more than adequate way to get FANG exposure, ARKW offers Bitcoin exposure to the tune of 6.7%.
The FANG stocks combine for over 18% of this Internet ETF’s weight with other big names such as Tesla Inc (NASDAQ:TSLA) and Twitter Inc (NYSE:TWTR). About two-thirds of ARKW’s roster is allocated to cloud computing stocks, big data providers and e-commerce firms, according to issuer data.
Internet ETFs to Buy: KraneShares China CSI Internet ETF (KWEB)
Expense Ratio: 0.72%
Among internet ETFs that focus their lineups on ex-U.S. equities, the KraneShares China CSI Internet ETF (NASDAQ:KWEB) is one of the kings. KWEB, which turns four years old at the end of July, is a $638.3 million fund, making it one of the largest China niche strategies.
This Internet ETF is up a breathtaking 51% year-to-date. To put KWEB’s stellar 2017 performance into context, adding up the gains of the aforementioned FDN and the technology/internet-heavy Nasdaq-100 Index would result in a sum that is still below the 49.3% returned by the China internet ETF.
KWEB holds familiar Chinese internet giants, such as Alibaba Group Holding Ltd (NYSE:BABA) and Baidu Inc (ADR) (NASDAQ:BIDU). KWEB’s exposure to China’s booming e-commerce market could be a driver of long-term returns. As KraneShares notes, “Chinese E-Commerce sales reached $749 billion in 2016 (compared to $394.9 billion in the U.S.) an increase of 26.2% year over year.”
Internet ETFs to Buy: Emerging Markets Internet and Ecommerce ETF (The) (EMQQ)
Expense Ratio: 0.86%
Investors that do not want to confine their search for international Internet stocks to China can consider Emerging Markets Internet and Ecommerce ETF (The) (NYSEARCA:EMQQ), which is up 51% year-to-date. While China looms large in this internet ETF, the fund’s selection universe scores of other developing economies, including India, Brazil, Russia, South Korea, Taiwan and Thailand.
As its name implies, EMQQ emphasized e-commerce stocks, meaning this internet ETF is levered to the emerging markets consumer. As investment theme, the emerging markets consumer has tempted and vexed investors for years.
EMQQ is proving to be a better mousetrap for capturing the emerging markets consumer theme for at least one important reason. Many developing economies lack traditional brick-and-mortar retail infrastructure on par with the West, meaning EMQQ is at the right place at the right time as emerging markets consumers turn to computers, smart phones and tablets to go shopping.
By 2025, consumption in developing economies could reach $30 trillion, or half the global total, according to EMQQ’s issuer.
Todd Shriber does not own any of the aforementioned securities.