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.

Although the two funds have some overlap, IGN's top holdings tend to carry slightly more weight within the fund. Additionally, IGN carries a substantially lower expense ratio (0.48%) than its PowerShares competitor (PXQ has a 0.68% expense ratio).

IGN's top 10 holdings are Juniper Networks, 9.45%; Motorola, 9.38%; Qualcomm, 9.24%; Cisco Systems ( CSCO), 8.57%; Research in Motion ( RIMM), 6.89%; F5 Networks ( FFIV) (FFIV) 5.57%; Harris, ( HRS), 4.36%; Tellabs ( TLAB), 4.15%; Polycom ( PLCM), 3.74%; and Commscope ( CTV), 3.58%.

Meanwhile, PXQ's top 10 holdings are VMware ( VMW), 5.73%; Qualcomm, 5.40%; Broadcom ( BRCM), 5.38%; Citrix Systems ( CTXS), 5.38%; Amphenol ( APH), 5.25%; Juniper Networks, 5.18%; Symantec ( SYMC), 5.13%; Cisco Systems, 5.01%; ADC Telecom ( ADCT), 4.15%; and F5 Networks, 3.30%.

While IGN's lower expense ratio may be initially appealing to prospective investors, keep in mind that the fund's higher holding weightings make it more sensitive to the performance of individual companies.

Granted, the entire networking sector appears to be performing well, so this may not be a source of major concern for many. The two funds are neck-and-neck in terms of YTD returns, with PXQ leading with 63.15% growth over IGN's 60.57%.

Still, with hefty exposure to smartphone manufacturers such as MOT and RIMM, I believe investors have a purer networking play in PXQ.

-- Written by Don Dion in Williamstown, Mass.
At the time of publication, Dion Money Management did not own any of the equities mentioned.

Don Dion is president and founder of Dion Money Management, a fee-based investment advisory firm to affluent individuals, families and nonprofit organizations, where he is responsible for setting investment policy, creating custom portfolios and overseeing the performance of client accounts. Founded in 1996 and based in Williamstown, Mass., Dion Money Management manages assets for clients in 49 states and 11 countries. Dion is a licensed attorney in Massachusetts and Maine and has more than 25 years' experience working in the financial markets, having founded and run two publicly traded companies before establishing Dion Money Management.

Dion also is publisher of the Fidelity Independent Adviser family of newsletters, which provides to a broad range of investors his commentary on the financial markets, with a specific emphasis on mutual funds and exchange-traded funds. With more than 100,000 subscribers in the U.S. and 29 other countries, Fidelity Independent Adviser publishes six monthly newsletters and three weekly newsletters. Its flagship publication, Fidelity Independent Adviser, has been published monthly for 11 years and reaches 40,000 subscribers.