No end in sight for Internet ETFs exodus (exl. China focus)

Distaste for Internet ETFs (excluding China focus) remains strong this year as the ETF theme saw a gush of net outflows amounting to $1.7 billion and an average share price loss of -15%. The U.S. Federal Reserve's recent stance to fend off inflation with rake hikes has worried tech investors about a possible reversal of the impressive bull run the sector has witnessed over the past few years.

Tech-heavy indices have fallen this year with the Nasdaq-100 for example, losing 8% of its value YTD. Meanwhile, the Nasdaq CTA Internet Index designed to track the performance of the largest and most liquid U.S.-listed companies engaged in internet-related businesses has fallen by -19% over the same period.

Other issues weighing on these internet stocks are the Russia- Ukraine war and the exodus of hundreds of companies from Russia, not to mention the possible back and forth sanctions with China, or the rise of stringent internet regulations in Europe.

This outflow trend that touched ETFs with exposure to US or European internet stocks is very different from the one seen in ETFs that invest in Chinese Internet stocks. To put things into perspective, the KraneShares CSI China Internet ETF (KWEB) remains one of the most popular thematic ETFs today despite its poor performance. Year-to-date, investors added $1.4 billion to KWEB, and remain indifferent to the ongoing Chinese crackdown on the domestic tech and internet industries.

American investors: How to invest in Internet ETFs

Investors who see the dip as a buying opportunity can explore the following ETFs: (not investment advice)

• First Trust Dow Jones Internet Index Fund (FDN)
• ARK Next Generation Internet ETF (ARKW)
• Invesco NASDAQ Internet ETF (PNQI)
• O’Shares Global Internet Giants ETF (OGIG)
• First Trust Dow Jones International Internet ETF (FDNI)

You can explore the full list of Internet and other Thematic ETFs here.

FDN is the largest internet ETF stock in the group with $7.1 billion in assets under management. The fund seeks to track the Dow Jones Internet Composite Index and invests in the largest and most actively traded stocks of U.S. companies in the Internet industry.

As of March 29th, 2022, the fund's holdings are spread across the information technology sector (44.8%), communication services (30.4%), consumer discretionary (18.8%), healthcare (3.58%) and real estate (2.31%). The portfolio's 42 holdings include Amazon.com Inc. (9.8%), Meta Platforms Inc. (6.7%), Alphabet Inc. Class A (4.95%), Alphabet Inc. Class C (4.59%), and Salesforce.com inc. (4.58%) – to mention a few. FDN has a total expense ratio of 0.51% and trades primarily on the NYSE Arca. This year, FDN's share price dropped by -14%.

European investors: How to invest in Internet ETFs

European investors have equal access to U.S and international internet stocks through:

• First Trust Dow Jones Internet UCITS ETF (FDN)
• First Trust Dow Jones International Internet UCITS ETF (FTSZ)

You can explore the full list of Internet and other Thematic ETFs here.

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