Tech Services ETFs: Internet-Related Investing Requires a Bit of Faith
Successful investing has, for many, felt more like a mirage than an oasis. The collapse in real estate prices has eroded homeowner equity. And the 20% declines in broad market benchmarks have substantially diminished retirement assets.
We made it through the worst of subprime... or so we had thought. We fought off a traditional recession... or so we had hoped. Yet we now find ourselves wondering if the new world "oil order" will snuff out the last flame.
Whether the next crisis or panic can be managed is still unknown. Nevertheless, the historical evidence on crises and panics demonstrates that markets overreact. Just as assets can be artificially inflated in times of excessive greed, they can be devalued to incredibly low levels.
I'm not suggesting that the market is substantially undervalued at the present moment. Most observers would peg the market at fairly valued... with a select number of bargains to be had.
I am suggesting that nobody ever became wealthy by avoiding risk altogether; rather, the smarter, more balanced approach is to diversify across the asset classes and selectively nibble at areas of intrigue.
Note:
- For commodity exposure, read more about my year-long favorite, the Dow Jones Total Commodity Index (DJP). It's up 44% since I began favoring the fund last August!
- For currencies, review my shift away from the euro and towards the Chinese yuan/renminbi.
- For international bonds, check out the possibilities in international treasury debt.
The 5-year bull market for stocks effectively ended in October of 2007. And were it not for the emergency Fed cut of the discount window lending rate in mid-August, the 9-month bear would actually be an 11-month mauling.
Still, might there be a nano-sized silver lining in $4.00 or $5.00 gasoline? I've already talked about the likely benefit for alternative energy ETFs, though that is a longer-term outlook.
Instead, I am thinking about the possibility that higher gasoline will inspire more consumers to shop online. I am considering the likelihood that more investors will seek financial services from the web. And I am reasoning that more of the workforce will be utilizing online solutions for meeting, communicating and getting business done.
With the current mood on Wall Street so sour, it may be a challenge to see the ocean beyond the desert. Nevertheless, here are a few ETFs that could capitalize on our service-based economy.
1. The PowerShares Nasdaq Internet Portfolio (PNQI) the NASDAQ Internet Index, a benchmark that compiles some of the largest U.S.-listed Internet companies. Google (GOOG), eBay (EBAY), Amazon (AMZN), Expedia (EXPE), Priceline (PCLN), Yahoo (YHOO) – you probably use one or more of these company’s services on a daily basis.
Yet technology, particularly Internet companies, are noticeably volatile. Annually, the price movement may double that of typical growth-oriented companies.
Still, it is the information technology of GPS that makes it possible for your Blackberry to tell you precisely where you are via Google Maps. It is Amazon’s reach that makes it possible to purchase almost any new or used item without driving to a strip mall. And it’s eBay’s extensive online world that makes the heat of a summertime swap meet even more ludicrous.
Although the Nasdaq Internet Portfolio is heavily tilted towards a growth company orientation, it is fairly well-distributed over small, mid-sized and large market capitalization stocks. When it comes to growth, you probably would prefer a bit of the small and medium sized firms that have the potential to grow exponentially.
2. The iShares Networking Fund (IGN) has been a big-time laggard in the bull market. And it hasn't been bear-resistant since October either.
That said, IGN did not revisit the March lows the way that the S&P 500 (SPY) or the Nasdaq or the iShares Dow Jones Technology Fund (IYW) did. In fact, the collective power of the networking giants -- Cisco (CSCO), Qualcomm (QCOM), Harris (HRS), Juniper (JNPR) -- has been quietly hanging tough.
It's not that IGN doesn't come without significant risk; it is 1.5x more volatile than the market at large. Yet, just as I've been bullish on infrastructure, one has to consider the possibility that the iShares Networking Fund is a solid investment in tech infrastructure.
Disclosure Statement: ETF Expert is a web log ("blog") that makes the world of ETFs easier to understand. Pacific Park Financial, Inc., a Registered Investment Advisor with the SEC, may hold positions in the ETFs, mutual funds and/or index funds mentioned above. Investors who are interested in money management services may visit the Pacific Park Financial, Inc. web site.
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