A Hidden Gem Among Internet ETFs

MarketsETF Trends

This article was originally published on ETFTrends.com.

There are plenty of internet ETFs dedicated to Internet stocks, opening the possibility that some good funds in this arena can go overlooked. That is the case with the SPDR S&P Internet ETF (NYSEArca: XWEB).

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XWEB is comprised of internet names taken from the S&P Total Market Index. The ETF tracks the S&P Internet Select Industry Index.

XWEB “seeks to track a modified equal weighted index which provides the potential for unconcentrated industry exposure across large, mid and small cap stocks,” according to State Street Global Advisors (SsgA).

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After surging 37% last year, technology remains a favorite among investors, despite data suggesting technology stocks are relatively expensive as they trade at elevated price-to-earnings compared to the broader S&P 500. Roughly a third of global fund managers say they are overweight tech in their portfolios, according to a recent Bank of America Merrill Lynch survey.

“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,” according to InvestorPlace.

Related: Two Tech Trends Shaping 2018

Internet stocks are usually viewed as a growth and a momentum names, a positive trait at a time when value stocks are lagging.

The growth factor may be gaining momentum as investors turned to upbeat economic and earnings data, causing many to adopt a more risk-on attitude. Since growth stocks show high multiples, investors may expect that the companies will sustain a high growth rate. In contrast, traders may feel that firms with low multiples would continue to experience tepid growth.

“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,” notes InvestorPlace.

For more information on the tech sector, visit our technology category.

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