In 1989 the S&P 500 changed the world of finance when it introduced a marketable security that not only tracked an index or a basket of assets but was traded like a common stock, hence the ETF (Exchange Traded Fund) was born. Although this first attempt of ETFs was short lived, now, almost three decades later we sit in a world where there are over a thousand ETFs worldwide and the chief provider of ETFs are iShares. Martin Small (Black Rock’s head of US iShares) claims that ETFs could rise from their 8% level to as high as 50% of the US equities market. Furthermore, with low volatility in US markets, many ETFs have been thriving.
Despite worries over the progress of FANG (Facebook, Amazon, Netflix and Google) stocks, several internet ETFs have hit record highs and, in fact, to the date four of the top ten non-leveraged ETFs are focused on internet stocks. Despite allocating about 33% of its weight to the aforementioned Facebook, Amazon, Netflix and Google (now traded under the parent company Alphabet of course), the First Trust DJ Internet Index Fund (ETF), the largest internet ETF in the history of America, is 26% higher year to date, with much of the $177 million net inflows to this fund due to its perceived cost efficient route towards FANG exposure.
However, other internet funds, although still successful, have different techniques of tapping into this perceived boom in internet ETFs. Focusing on the Asian internet market could lead you towards KraneShares China CSI Internet ETF, which is up a whopping 51% year to date, holds such internet giants as Baidu Inc (ADR) and Alibaba Group Holding Ltd and could hold to key to tapping into the 26.2% growth seen in the Chinese e-commerce market. However, much of the talk surrounding ETFs have been away from the internet markets discussed. With the world’s largest software manufacturer Microsoft announcing much greater than predicted fiscal results – with EPS (earnings per share) coming in at 98 cents – investors could look towards tech-heavy ETFs. And they certainly have been. Momentum-seeking investors have kept an eye on VGT ETF which, containing giants such as Apple Inc and Microsoft, has seen a ride to a new 52-week high. These growths can be attributed towards the gains made by the NASDAQ which has been spurred on ahead of a week of earning reports for the tech sector. Furthermore, with a 14-day volatility as low as 8.75% and a weighted alpha of 30.4, there could still be gains to be made with this fund.
Therefore, although it must be taken with a pinch of salt when the world’s largest ETF provider trumpets the glamour and glory of the very thing they provide, Mr Small’s comments surrounding the future of ETFs could be partially true – although maybe not to the extent. With strong performances by ETFs since the year start and with many hitting record highs, there could still be gains to find. Furthermore, with Facebook and Amazon scheduled to produce their quarterly results later this week, many investors remain focused on these sectors as potential investments.