Shares of Facebook, Inc. (NASDAQ:FB), the largest U.S. social media company, are off more than 6% over the past week amid a data-sharing controversy that has seen the company’s valuations fall to its lowest levels since its initial public offering.
Facebook, often one of the largest components in internet exchange-traded funds (ETFs) now resides below its 200-day moving average for the first time since early 2017. Bad things like that happen when federal regulators investigate a company’s use of personal data.
While Facebook has recently taken it on the chin, some internet ETFs are still delivering stout returns. In fact, a broad swath of internet ETFs, both with and without Facebook exposure, are sporting double-digit, year-to-date gains. Consider some of the following high-flying names among internet-based ETFs.
Internet ETFs to Buy: KraneShares CSI China Internet ETF (KWEB)
Expense Ratio: 0.72%, or $72 annually per $10,000 invested
For investors looking to tap internet funds without having to worry about controversy surrounding Facebook, or any other U.S. internet name for that matter, the KraneShares CSI China Internet ETF (NASDAQ:KWEB) is arguably the premier destination.
As its name implies, KWEB is dedicated to Chinese internet stocks, a strategy that makes sense when considering it’s the world’s largest internet market by a wide margin. Put it this way: China has more internet users than the U.S. has citizens. What makes KWEB a compelling long-term investment is that internet penetration in China is still fairly low relative to developed markets, such as the U.S. or U.K.
In 2016, “China’s internet population reached 721 million people, a penetration of only 52.2%. The U.S. internet population reached 287 million people, a penetration rate of 88.5%,” according to KraneShares.
Many of KWEB’s holdings trade on U.S. exchanges, including Alibaba Group Holding Ltd (NYSE:BABA), Baidu Inc (ADR) (NASDAQ:BIDU) and JD.Com Inc(ADR) (NASDAQ:JD). This internet ETF is up about 15% year-to-date.
Internet ETFs to Buy: First Trust Dow Jones Internet ETF (FDN)
Expense Ratio: 0.54%
The First Trust Dow Jones Internet ETF (NYSEARCA:FDN) is the largest U.S.-focused internet ETF and this fund illustrates the advantages of a basket approach to internet investing over single stock exposure. Facebook is FDN’s second-largest holding behind Amazon.com, Inc. (NASDAQ:AMZN) with the former commanding 7.8% of FDN’s weight and that is after the stock’s recent slide. Still, FDN is up more than 15% this year.
A substantial portion of FDN’s 2018 bullishness can be attributed to Amazon and Netflix, Inc. (NASDAQ:NFLX), which combine for nearly 16% of the ETF’s weight. Some data points indicate investors may want to tread carefully with the consumer discretionary sector, the home group for Amazon and Netfilx.
That sector “is now trading at a 22 percent premium to the market, well above its historic 9 percent premium. As prices rose for discretionary stocks, earnings per share for the sector have fallen since late 2016,” reports CNBC.
Internet ETFs to Buy: PowerShares NASDAQ Internet Portfolio (PNQI)
Expense Ratio: 0.60%
The PowerShares NASDAQ Internet Portfolio (NASDAQ:PNQI), one of the best-performing ETFs since the start of the current bull market, features heavy exposure to U.S. internet stocks, but mixes in foreign fare, including Baidu and JD.com.
Up just over 17% this year, the $631.8 million PNQI holds 96 stocks and tracks the NASDAQ Internet Index. PNQI cements the notion that internet stocks often sport valuations that are well in excess of the broader market as its price-to-earnings ratio of almost 45.3 is nearly double the comparable metric on the S&P 500.
Internet ETFs to Buy: SPDR S&P Internet ETF (XWEB)
Expense Ratio: 0.35%
Among internet ETFs, the SPDR S&P Internet ETF (NYSEARCA:XWEB) leads something of an anonymous existence, but that is not a criticism. Relative to the other ETFs highlighted above, XWEB is young as it will not turn two years old into June. Youth is not holding this internet fund back as highlighted by a year-to-date gain of 18%.
XWEB holds 68 stocks and follows the S&P Internet Select Industry Index. Like the other S&P select industry benchmarks, XWEB’s index is equally weighted, a methodology that helps limit single stock risk. None of XWEB’s holdings account for more than 2% of the fund’s weight. The weighted average market value of this internet fund’s holdings is less than $40 billion, indicating XWEB is not highly dependent on the Amazon’s and Facebook’s of the world as primary drivers of performance.
Neither Amazon nor Facebook are among XWEB’s top 10 holdings. Investors have yet to wake up to XWEB’s story as evidenced by $4 million in assets under management, but this internet ETF is up more than 39% over the past year.
Internet ETFs to Buy: ProShares Long Online/Short Stores ETF (CLIX)
Expense Ratio: 0.65%
The ProShares Long Online/Short Stores ETF (NYSEARCA:CLIX) debuted in November and seizes upon a viable investment thesis: the growth of online shopping at the expense of traditional bricks-and-mortar retailers.
CLIX tracks the ProShares Long Online/Short Stores Index. To that point, investors that are not familiar with this ETF should recognize this is a long/short strategy. Specifically, CLIX is 100% long online retailers or those retailers that are not dependent on brick-and-mortar stores, while holding a 50% short position in traditional, store-driven retailers.
Amazon and Alibaba combined for over 40% of the long exposure in CLIX at the end of last year. Regardless of where an investor likes to shop, online or in-store, there is no denying the CLIX strategy is working. This internet ETF is up more than 23% year-to-date.
Internet ETFs to Buy: EMQQ Emerging Markets Internet & Ecommerce ETF (EMQQ)
Expense Ratio: 0.86%
The EMQQ Emerging Markets Internet & Ecommerce ETF (NYSEARCA:EMQQ) is a broad play on the emerging markets e-commerce and internet boom. While China is the dominant country in this theme, EMQQ’s geographic selection universe also includes Brazil, Indonesia and South Africa, among other well-known developing economies. Overall, 10 countries are represented in this internet ETF.
Components in EMQQ include companies engaged in internet search, online retailing, mobile payments, online game and social networking. Many traditional emerging markets ETFs feature barely enough exposure to the consumer discretionary and technology sectors to adequately capture the growth of the online consumer trend in developing economies. Conversely, EMQQ explicitly focuses on that compelling trend.
“Over the next 10 years, the Emerging Market consumer is expected to grow three times faster than their developed counterparts,” according to ETF Trends.
EMQQ is up 12% this year.
Internet ETFs to Buy: Amlify Online Retail ETF (IBUY)
Expense Ratio: 0.65%
The Amlify Online Retail ETF (NASDAQ:IBUY) turns two years old next month and it has been on a torrid pace since coming to market. That torrid pace is continuing in 2018 as IBUY is up nearly 14%. Here is the tale of the tape when it comes to IBUY’s dominance among retail ETFs: Since inception, IBUY is up about 84%, while the SPDR S&P Retail ETF (NYSEARCA:XRT), the largest retail ETF, is off 1.3%.
Making IBUY all the more attractive is that it has been 260 basis points less volatile than XRT since inception. Top 10 holdings in this internet ETF include Netflix and Amazon. The EQM Online Retail Index, IBUY’s underlying benchmark, requires member firms to generate at least 70% of their sales in online venues.
This internet ETF is not exclusively domestic as a third of its 39 holdings are foreign companies. It has taken IBUY just 23 months to flirt with $280 million in assets under management, indicating investors are comfortable betting on the future of online retailing.
Todd Shriber does not own any of the aforementioned securities.