There have been other sorts of ETF milestones as the investment product has started to mature. From the point of meaningful product proliferation nine or ten years ago we now have the opportunity to look back to see how funds have performed, how their constituencies have changed over the years and offer insight into what the future may hold.
A case in point is the First Trust DJ Internet Index Fund (FDN). From the time we first looked at the fund seven years ago the holdings have changed, the assets in the fund have skyrocketed to almost $1 billion and investors seem to give the internet space's future prospects a little more benefit of the doubt.
When we first looked at FDN in 2006 Google (GOOG) was the largest component at 11% with Yahoo! (YHOO) a close second at 10.75%. TD Ameritrade (AMTD) and eTrade (ETFC) had 4% and 8% weightings, respectively, which seems like a surprise but they met the hurdle for generating at least 50% of their revenue from the Internet.Since the peak for financial stocks in 2007, EFTC is down 95% and AMTD has had a very volatile ride to no net gain. The action in these two stocks has caused their weightings in FDN to each drop to about 2%. Google is still the largest holding at 10% but because Yahoo! has underperformed the fund, its weighting has dropped to 4.6%.
Additionally, many of the so-called Internet 2.0 stocks have made their way into the fund including LinkedIn (LNKD), with a 3.7% weighting; Facebook, (FB) at 3.6%, and even Groupon (GRPN), which now weighs in at 1.6%. Where Internet stocks are generally a higher growth niche within the tech sector it makes sense to expect that FDN would go up more than the overall sector in general during a bull phase and down more during a bear phase, and this has pretty much played out. During the bear market FDN went down slightly more than the broad-based iShares US Technology ETF (IYW). In the last three years though, FDN is up 60% compared to just 24% for IYW.
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