Networking ETFs Pick Up Steam

Networking ETFs have outperformed the broader technology sector and investors can gain the most direct exposure through PowerShares Dynamic Networking (PXQ).

Networking has been a strong force within the recovering economy, and ETF issuers iShares and PowerShares each offer a fund for those seeking exposure to the sector.

While the S&P North American Technology-Multimedia Networking Index Fund(IGN) places higher weight in its top holdings, and includes more commonly known telecom titans such as Motorola(MOT), the PowerShares Dynamic Networking Portfolio Fund(PXQ) opts for a more even weighting distribution across its shares and a more traditional portfolio composition.

As IGN's name implies, it holds some multimedia and communications companies not typically associated with networking, such as Research in Motion(RIMM).

With smartphones and tablet computers increasing the demand for data services, network providers are forced to upgrade their systems, and the companies in the networking funds will benefit from the capital spending at these firms.

Networking firms are seeing demand for their products, while developing markets such as electric vehicles open new markets for connectivity software and hardware.

Recently, IGN's top holding, Juniper Networks(JNPR), announced its selection by AT&T(T)as a domain supplier for the IP/MPLS/Ethernet/Evolved Packet Core domain. "As a supplier selected for this strategic domain, Juniper is looking forward to working closely with AT&T and our ecosystem partners to deliver the improved economics and user experience that is a priority for AT&T," said Kevin Johnson, CEO of JNPR.

Similarly, Qualcomm(QCOM), IGN's third largest holding, and PXQ's second largest holding, recently cut a deal with ECOtality(ECTY).

The two companies entered into an agreement allowing ECTY to implement cellular connectivity into electric vehicle charging stations. This implementation will facilitate ECTY's use of commercial cellular networks to manage its Blink brand charging station operations, transfer usage data, download firmware updates and publish availability to electric vehicle drivers in real time.

Meanwhile, IGN's second largest holding, Motorola, announced their second quarter 2010 financial results yesterday. In addition to reported sales of $5.4 billion in the second quarter of 2010, the company's GAAP earnings in the second quarter of 2010 were listed at $162 million, or 7 cents per share, as compared with GAAP earnings of $26 million, or 1 cent per share, in the second quarter of 2009.