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Exchange-traded funds offer a convenient way to invest in sectors or niches that interest you. If you expect Internet-related companies to thrive over time, as more and more people spend more time online (especially in developing economies), the PowerShares NASDAQ Internet ETF (Nasdaq: PNQI ) could save you a lot of trouble. Instead of trying to figure out which companies will perform best, you can use this ETF to invest in lots of them simultaneously.
ETFs often sport lower expense ratios than their mutual fund cousins. The PowerShares ETF's expense ratio -- its annual fee -- is 0.60%. The fund is fairly small, too, so if you're thinking of buying, beware of occasionally large spreads between its bid and ask prices. Consider using a limit order if you want to buy in.
This ETF has performed well, trouncing the world market over the past three years. But it's also very young, with just a few years on the books. As with most investments, of course, we can't expect outstanding performances in every quarter or year. Investors with conviction need to wait for their holdings to deliver.
With a low turnover rate of 23%, this fund isn't frantically and frequently rejiggering its holdings, as many funds do.
What's in it?
Several Internet companies had strong performances over the past year. Cloud computing, and online content delivery specialist Akamai Technologies (Nasdaq: AKAM ) , for example, surged 53%, sticking it to the many who had doubted it. Akamai credits its recent success to cost cutting and to high demand for its cloud-computing infrastructure services. Half a billion dollars spent buying back shares has also helped.
Up 24%, priceline.com (Nasdaq: PCLN ) has been experiencing strong growth internationally, thanks, in part, to some savvy acquisitions. Rapid growth rates can’t continue forever but, for now, priceline.com’s earnings and revenue have been experiencing steep – and accelerating – growth rates, 100% and 41%, respectively, over the past year. The stock has been a huge winner for Motley Fool Rule Breakers investors, but some think it has risen too quickly lately.
Other companies didn't do as well last year, but could see their fortunes change in the coming years. China-based Twitter-like company Sina (Nasdaq: SINA ) , for example, plunged 56%, with bears concerned about all the money that Sina is investing in its microblogging business. They are worried about competition, as well, such as from Facebook-like Renren. And, as with many Chinese companies, possible government intervention and censorship are threats, too.
China’s Google-like search-engine giant Baidu (Nasdaq: BIDU ) shed 19%, though its recent quarterly report showed earnings up 70% over last year. Other impressive numbers include revenue per customer rising 35%, and its expected growth rate of close to 40%. Some may not like the rising sums that Baidu is plowing into research and development, but that kind of investment can pay off significantly in the future.
The big picture
Demand for Internet services isn't going away anytime soon. A well-chosen ETF can grant you instant diversification across any industry or group of companies -- and make investing in, and profiting from, it that much easier.
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