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Investing in an Internet company is interesting given its tremendous growth potential. The use of the Internet is growing rapidly because it allows convenient, fast, and secure connectivity between consumers and suppliers. The use of the internet is gaining traction not only in developed countries but also in developing countries such as China, which now claims to have the largest Internet user base.

Internet funds have performed well in the past two years. First Trust Internet ETF (FDN) for example has gained 145%, more than three times the 45% S & P 500.

Although Internet funds are seen as sector funds, in fact they offer exposure to companies that cover various sectors.

Internet companies fall into two broad categories, namely those that allow the Internet to generate profits and companies that use the Internet to generate profits.

Internet activists are usually in the information technology sector. These include companies such as Cisco Systems (CSCO) and content delivery networks such as Akamai Technologies (AKAM).

Internet users often come from other sectors such as consumer wisdom, financial services, or health care. Examples of such companies include:

* (AMZN), the largest online retailer that sells items ranging from books to shoes

* Netflix (NFLX), a subscription provider for online movie rentals

* (PCLN), a company that offers services related to online travel

* TD AMERITRADE (AMTD), an online securities broker and financial services company

* WebMD Health (WBMD), provider of online health care information for consumers and medical professionals

In addition, there are giants such as Google (GOOG) and Microsoft (MSFT) that enable the Internet with the search capabilities they provide and connect customers to businesses through their advertising network.

There are three families that offer exchange-traded entities to invest in the Internet: First Trust, Invesco PowerShares, and Merrill Lynch.

First Trust Dow Jones Internet ETF (FDN)

FDN seeks to track prices and produce the performance of around 40 Internet companies included in the Dow Jones Internet Index. The funds are invested in companies that earn at least 50% of their income online. The top 10 holdings include well-known names like Google,, and eBay (EBAY). The fund is relatively concentrated with the top 10 ownership representing more than 50% of portfolio assets.

PowerShares Nasdaq Internet Portfolio (PNQI)

PNQI tracks price performance and results from more than 50 Internet companies listed on the Nasdaq Internet Index. Top 10 holdings including Google, Yahoo! (YHOO) and This fund is also concentrated with the top 10 ownership which accounts for almost 60% of portfolio assets. An interesting feature of this fund is that Chinese companies, Baidu (BIDU), SINA (SINA), and (SOHU) represent around 12% of portfolio assets.

Merrill Lynch Internet HOLDRs (HHH)

Bank of America Merrill Lynch HOLDRs offers four investment products related to the Internet: HOLDR Internet (HHH), HOLDR Internet Architecture (IAH), Internet HOLDR Infrastructure (IIH) and B2B Internet HOLDR.

Although HOLDR (an acronym for Hory Company Depository Receipts) is traded like shares on the stock exchange, they do not track the underlying index. Ownership includes shares of the HOLDR company starting in 1999 and 2000. Over the years, the number of ownership has declined due to the exit or takeover of several companies. HOLDR Internet B2B only has two shares and HOLDR Internet Infrastructure has less than 10 shares. An important omission in all HOLDR Merrill Lynch is Google's industry titan.

Among these product lines, HOLDR Internet (HHH) is worth considering. Internet HOLDR with 13 ownership arguably does not make investors have the same level of risk concentration as other HOLDRs. Investors in HOLDR Internet (HHH) should note that accounts for more than 40% of this investment product.