Love him, hate him, or something in between, you can’t deny that Kevin O’Leary is always entertaining. Whether he’s giving his politically charged opinions, or blasting an entrepreneur on “Shark Tank,” O’Leary is must-watch TV. But is he a must-buy investment? That’s the question surrounding the O’Shares Global Internet Giants ETF (NYSEARCA:OGIG).
A technology and e-commerce-focused fund, the O’Leary-sponsored Internet Giants ETF debuted in the markets on Tuesday. While it’s obviously too early to start making prognoses, OGIG is off to a somewhat unremarkable initiation, ending its first week down 4.8% while the Nasdaq Composite index lost 0.5%
Tech firms are known for their huge capital gains; therefore, at first glance, the Internet Giants ETF may appear disappointing. However, Mr. Wonderful, as O’Leary is known, thinks otherwise. As he told Forbes in an interview a few years ago, the investor and reality TV star emphasizes sustainable growth. O’Leary isn’t looking to chase nearer-term upside at the expense of longer-term viability.
He also doesn’t want to be levered excessively towards any one name. In the Forbes interview, O’Leary mentioned the calamity following the 2008 financial meltdown. Betting too deeply in one company, especially a tech firm, could spell trouble.
How does this translate in terms of practical actionable ideas? The Internet Giants ETF features several top performers with strong financials. Some of these reads like from the typical “who’s who” of internet and e-commerce players, such as Alibaba Group Holding Ltd (NYSE:BABA), Amazon.com, Inc. (NASDAQ:AMZN), Facebook, Inc. (NASDAQ:FB), and Alphabet Inc (NASDAQ:GOOGL).
Plus, the Internet Giants ETF benefits from excellent timing. Names like Alibaba, Amazon, and even Facebook, have been on the rebound in recent weeks, and that’s a net positive for the tech-centric fund.
International Exposure is a Pro and Con for Internet Giants ETF
But the biggest selling point for Internet Giants ETF is its global exposure. Evidenced by O’Leary comment: “I would have never built this if it already existed. There isn’t a single index I can find that’s global in this space.”
Mr. Wonderful means what he says. The Internet Giants ETF has 52 holdings. Several of them are Chinese tech companies, including YY Inc (ADR) (NASDAQ:YY), Baidu Inc (ADR) (NASDAQ:BIDU), 58.com Inc(ADR) (NYSE:WUBA), and JD.Com Inc(ADR) (NASDAQ:JD).
Here’s the thing: you’ll find plenty of analysts who are gaga over Chinese stocks. But some of the holdings within the Internet Giants ETF is mixed. You have winners like Baidu, and 58.com, which are both up 9%. But then you have losers like JD.Com and YY Inc, which are down 7% and 14%, respectively.
Curiously, O’Leary emphasized in the Forbes interview that he wasn’t interested in buying companies that don’t pay dividends. But that’s exactly what he has on his list. Alibaba doesn’t offer passive income, nor do any of the above-mentioned Chinese stocks.
I’m not picking on the Chinese. Even the American stalwarts like Amazon, Alphabet and Facebook are stingy in this regard. Among the top ten holdings, only Tencent Holdings Ltd. (ADR) (OTCMKTS:TCEHY) and Microsoft Corporation (NASDAQ:MSFT) pay dividends. And by dividends, I use the term loosely.
Microsoft’s yield is 1.64%, whereas Tencent is borderline nonexistent at 0.18%.
That’s why I’m a little bit surprised about the marketing machine behind the Internet Giants ETF. This is supposed to be a conservative, consistent, and reliable fund within the technology and e-commerce sector. While it has blue-chip credibility, the stability comes from market dynamics, which really isn’t that dependable.
As Mr. Wonderful explained, I’d like to see passive income in my conservative stocks. So why don’t we have it?
Should You Buy the Internet Giants ETF?
If you’re thinking about pulling the trigger on OGIG, let me share a few thoughts. First, I’m not big on the marketing mismatch. The top 10 holdings should feature more-conservative names to align with the fund’s, and O’Leary’s, primary objective.
The other factor I want to discuss is its strong emphasis on Chinese stocks. Timing-wise, this is a heavy risk. Geopolitically, we’re going back-and-forth with the China trade issue. Furthermore, we have the dangerously unpredictable North Korea situation.
Chinese stocks could be a brilliant contrarian move, or it could end in disaster. Such binary exposure is confusing for someone who advocates quality dividend stocks.
Ultimately, I love the American names featured on the Internet Giants ETF, such as Amazon and Microsoft. On the other hand, I don’t get the warm and fuzzies with Chinese stocks. Sure, Alibaba and Baidu have done well this year, but several others are volatile. In this case, the international exposure is a net liability.
As of this writing, Josh Enomoto did not hold a position in any of the aforementioned securities.
