Every day I am more and more amazed by not only the number of ETF's available to investors, but how specific their investment strategies have become. The ETF industry has almost grown to the point that nearly not only every industry, but every niche segment of every industry has its own ETF tracking companies who operate in that field.
I recently highlighted a little-known ETF called PureFunds ISE Cyber Security ETF (HACK), which invests in companies who are making software and hardware to help others increase their own cyber security and fight hackers. Since the cyber security field is likely going to continue to show massive growth rates, investors buying into the fund today and holding on, can benefit from those growth rates without worrying about picking a losing company and missing out on the big winners.
I have recently found a few more hidden technology ETF's that investors should at the very least take a look at, if not consider owning.
The first ETF I would like to point out is the Global X Social Media Index ETF (SOCL). Currently, this is the only ETF on the market that focuses solely on social media companies. Furthermore, it caps the weights of the pure-play social media companies at 10% and the non-pure play companies at 4.75%, truly making it a focused social media ETF. It carries a reasonable expense ratio of 0.65% and has a dividend, but unfortunately it only yields 0.04%.
SOCL currently holds 31 stocks, with the top ten representing 62%. Facebook, Tencent, and LinkedIn are the ETF's top three largest holdings and represent 9.88%, 9.83% and 7.91% respectively of SOCL's assets. The fund is also not constrained to the US, as 46% of its holdings are non-US companies. At 23%, China represents the largest foreign exposure while Japan represents 11% and Russia 8%.
Over the past month, three months, year-to-date and two-year periods SOCL has beaten the S&P 500; 1.23% to -0.9%, 6.4% compared to a 2% gain, up 14% compared with 2.18%, and a 38% increase to just 31% for the S&P 500 over the last two years. But over the last 12 months, the S&P 500 has outpaced SOCL, gaining 7.3% compared to 4.9%. The 12 months performance certainly in part was due to Twitter's recent lackluster performance and shouldn't be seen as a major con against the ETF.
The next ETF I would like to point out focuses on companies operating in the WEB x.0 market. The goal of the ARK WEB x.0 ETF (ARKW) managers is to gain market-beating returns by investing in companies that rely on or benefit from increased use of shared technology, infrastructure and services in; Cloud computing, big data, the sharing economy, wearable technology, cryptocurrencies, services and data mining, internet of things, social media and digital education.
Since the fund began on September 30, 2014, it is up more than 18% while the S&P 500 has risen just 6.5%. The ETF carries a slightly high expense ratio of 0.95% and also does not offer any dividend yield. Its top ten holdings, which consist of Athenahealth, NetFlix, Twitter, NVIDIA, Salesforce, Splunk, Red Hat, LinkedIn, Facebook, and Amazon, make up 46% of the fund. The big name high flying stocks ARKW holds, gives investors some great potential upside value, but since the fund doesn't appear to be too heavily invested in just a few stocks, investors don't need to worry about poor performance if one holding experiences a bad run. All in all, the WEB x.0 market appears to be where all tech is heading, so getting into the space today, could be very profitable.
And lastly, we have KraneShares CSI Chinas Internet ETF (KWEB). This ETF invests in stocks found within the CSI Overseas China Internet Index, meaning the ETF will focus mainly on internet based stocks operating within China. Top holdings include Tencent at 10.6%, Alibaba at 8.2%, Baidu at 8%, Ctrip at 6.5%, JD.com at 5.8%, Qiho 360 at 4.4%, Netease.com at 4%, Vipshop at 3.7%, Youku.com at 3.6% and Sina at 3.5%.
KWEB has an expense ratio of 0.68%, but offers investors exposure to a market expected to show massive returns in the coming years.
Currently, China's internet user base is around 632 million, but the country has a population of more than 1.3 billion. In 2013, China experienced eRetail sales of $410 billion. That figure is expected to grow more than 59% to $650 billion by 2020. Furthermore, in China 4.3% of all retail sales were done over the internet, compared to just 1.1% in the US. To me this stat is an indication the Chinese are adapting to internet retail faster than American's, meanings if investors wait until eRetail sales show significant growth in the US, it may be too late to profit from the trend in China.
Finally, KWEB has been crushing the market in recent months. Over the last three months KWEB is up more than 22.3%, year-to-date it up 27%, one year 12% and two years a massive 58%, all of which easily beat the S&P 500's returns.
Final Thoughts
Not all investment types are for every investor. But, if we don't know what is available to use, we can't make truly informed decisions. Finding niche ETF’s in technology or any industry can help you turn a new business trend into a pile of money.
Matt Thalman
INO.com Contributor - ETFs
Follow me on Twitter @mthalman5513
Disclosure: This contributor held long positions in Facebook, Amazon.com, LinkedIn, and Salesforce.com. at the time this blog post was published. This article is the opinion of the contributor themselves. The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. This contributor is not receiving compensation (other than from INO.com) for their opinion.
