An ETF Area That's Worth Your Attention for 2021

Sweta Jaiswal, FRM

Thu, Dec 17, 2020, 10:32 PM 6 min read

The coronavirus outbreak continues being a serious concern. The world’s largest economy saw record numbers of new coronavirus infections and deaths ever witnessed in a single day on Dec 16, along with the highest number of Covid-19 hospitalizations witnessed since the outbreak of the pandemic, per a CNN report. Going by the COVID Tracking Project, more than 247,000 new coronavirus cases were recorded and more than 113,000 Americans were hospitalized with the virus on Dec 16. Also, the nation witnessed more than 3,600 deaths (according to a CNN report).

Meanwhile, despite the beginning of Pfizer Inc. (PFE) and BioNTech SE’s (BNTX) vaccine distribution in the United States, people fear another round of lockdowns and tighter social-distancing measures considering the aggravating coronavirus outbreak. In fact, experts have said that the vaccine impact will be observable from well into 2021, per the sources.

In the current scenario, the rising work-from-home and online-shopping trend, increasing digital payments, growing video streaming and soaring video game sales have gained huge popularity and become the ‘new normal’ trends. With the new trends making way, Internet will continue being a major requirement in daily lives. Against this backdrop, let’s look at the factors that make internet ETFs a potential investment area for the market participants.

Digital Dependency to Remain

The pandemic has provided a push to the e-commerce industry, as people continue to prefer staying indoors and shopping online for all essentials, especially food items. Keeping up with the digitization trend, the upcoming U.S. holiday season is anticipated to see a significant surge in online sales.

Going by research and advisory firm, Forrester, U.S. online holiday sales are expected to hit $173 billion this year, suggesting growth of 24% year over year from $139 million. Per the latest data from National Retail Federation (“NRF”), an estimated 186.4 million Americans shopped in-store and online during the Thanksgiving weekend (from Thanksgiving through Cyber Monday). The figure was higher than the 165.8 million in 2018, but down from last year’s 189.6 million. Online-only shoppers jumped 44% during the weekend to 95.7 million. Black Friday and Saturday also witnessed impressive growth in online activity. The number of online Black Friday shoppers passed the 100 million mark (for the first time), up 8% from last year. The number of online Saturday shoppers also climbed 17% year over year.

Along with increased interest in online shopping, customers are resorting to digital payments to clear bills. At the same time, merchants and utility providers are increasingly advocating the same.

The video game industry is seeing a boom as people are increasingly playing video games for some in-house entertainment, while maintaining social distancing amid the pandemic. Moreover, the boom in the video gaming space might remain in the post-pandemic era as well.

Cloud computing has emerged as a key technology and is keeping up with the growing work-from-home trend in the fight against coronavirus. It is supporting organizations in remotely processing a lot of information, developing and running key applications and services, and helping employees across the world collaborate while working. The work-from-home model has bumped up sales of PCs, laptops and other kind of computer peripherals.

More and more people are spending time at their homes, in line with the social-distancing guidelines thanks to the pandemic. As a result, they are resorting to streaming platforms like Netflix (NFLX), Amazon Prime or Disney+ (DIS) or turning to social-media platforms like Facebook (FB) and Twitter (TWTR) for in-house entertainment. In fact, according to Omdia’s latest report ‘Movie Windows: Adapting for the future’, published on Digital TV Europe, online transactional and SVOD revenues are projected to reach $34 billion in 2020, suggesting a jump of 30% from last year.

Internet ETFs to Continue Gaining

Against this backdrop, let’s look at some Internet ETFs that will continue to gain from increasing demand for online gaming, shopping, video streaming and work-from-home trends owing to the coronavirus crisis:

First Trust Dow Jones Internet Index FDN

The fund seeks investment results that correspond generally to the price and yield of the Dow Jones Internet Composite Index. It has amassed $10.96 billion in assets and charges 52 basis points (bps) in expense ratio. The fund carries a Zacks Rank #1 (Strong Buy), with a High-risk outlook (read: Holiday Shopping Shifts to E-Commerce: ETFs to Tap).

ARK Next Generation Internet ETF ARKW

It is an actively-managed ETF that seeks long-term growth of capital by investing under normal circumstances primarily (at least 80% of its assets) in domestic and U.S. exchange traded foreign equity securities of companies that are relevant to the fund’s investment theme of next-generation internet. The fund has an AUM of $4.93 billion, with an expense ratio of 76 bps. It has a Medium-risk outlook (read: 8 ETFs That Have Gained More Than 100% in 2020).

Invesco NASDAQ Internet ETF PNQI

It is based on the Nasdaq CTA Internet Index. The fund will normally invest at least 90% of its total assets securities that comprise the index. The index is designed to track the performance of the largest and most liquid U.S.-listed companies engaged in Internet-related businesses and that are listed on one of the major U.S. stock exchanges. It has amassed $1.01 billion in assets and charges 60 bps in expense ratio. The fund carries a Zacks Rank #2 (Buy), with a High-risk outlook (read: Top Two Sector ETFs of Past Decade Still on High Momentum).

O’Shares Global Internet Giants ETF OGIG

The fund is a rule-based ETF designed to provide investors with the means to invest in some of the largest global companies that derive most of their revenues from the Internet and e-commerce sectors that exhibit quality and growth potential. The fund has an AUM of $635.8 million, with an expense ratio of 48 bps (read: 5 Tech ETFs Leading the Post-Election Rally).

Global X Internet of Things ETF SNSR

The fund seeks to invest in companies that stand to potentially benefit from the broader adoption of the Internet of Things (IoT), as enabled by technologies such as WiFi, 5G telecommunications infrastructure, and fiber optics. This includes the development and manufacturing of semiconductors and sensors, integrated products and solutions, and applications serving smart grids, smart homes, connected cars, and the industrial internet. It has amassed $312.2 million in assets and charges 68 bps in expense ratio.