The Largest and Most Liquid Domestic Internet ETF

Jim Woods

Jim Woods has over 20 years of experience in the markets from working as a stockbroker, financial journalist, and money manager.

(Note: Today’s ETF Talk is the second in a series of funds designed to profit from the “stay-at-home” trend in COVID-19 America.)

The First Trust Dow Jones Internet Index Fund (NYSEARCA: FDN) seeks investment results that correspond generally to the price and yield, before the fund’s fees and expenses, of the Dow Jones Internet Composite Index.

The Dow Jones Internet Composite Index is a float-adjusted market capitalization weighted index designed to track the largest and most actively traded stocks of U.S. companies in the internet industry. To be eligible for the Dow Jones Internet Composite Index, a stock must be listed on the NYSE, NYSE MKT or NASDAQ stock exchange, generate a majority of its sales/revenue from the Internet, have a minimum trading history of three months and offer a minimum three-month average float-adjusted market capitalization of $100 million.

Eligible stocks are ranked first by their three-month average float-adjusted market capitalization and then by their three-month average share volume. A final rank is calculated based on an equally weighted average of the market cap and volume rankings.

Companies are sorted by final rank and 40 companies are selected, consisting of 15 stocks classified as Internet Commerce, with 25 categorized as Internet Services. The weight of any individual security is restricted to 10% and the aggregate weight of individual securities with weights of 4.5% or more is limited to 45%. The index is rebalanced quarterly.

Chart Courtesy of StockCharts.com

This fund does an exceptional job of capturing the internet industry at a competitive all-in cost. It holds the 40 biggest U.S. internet-related companies, prominently featuring names such as Amazon (NASDAQ:AMZN), Facebook and Google’s parent company, Alphabet (NASDAQ:GOOGL). FDN’s fee is in line with the other funds in its segment, but it is not a cheap to attain exposure to 40 large and liquid U.S. companies.

FDN has $7.7 billion in assets under management and 43 holdings. It has an average spread of 0.8% and an expense ratio of 0.52%. Still, it trades better than other domestic internet exchange-traded funds (ETFs), keeping all-in costs reasonable. FDN dominates the segment in assets, too. For exposure to plain vanilla internet coverage, FDN can’t be beaten.

Investors who want exposure to the domestic internet market should consider this fund. However, as always, exercise your own due diligence in deciding whether this fund fits your individual portfolio goals.

As always, I am happy to answer any of your questions about ETFs, so do not hesitate to send me an email. You just may see your question answered in a future ETF Talk.

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