The FDN (First Trust) ETF created in 06/2006 replicates the Dow Jones Internet Index, which is composed of the main US stocks in the sector. This index is fairly broad and includes 43 holdings that must necessarily generate at least 50% of their turnover via the internet, have a minimum market capitalization of $ 100M over the last 3 months of listing, have a stock price of at least $ 10 and meet liquidity requirements.
This ETF is listed as its components in USD and incurs a fee of 0.53% with an AUM of about $ 7492M. The replication method is direct and there is so far no dividend distribution.
Alternative ETFs: PNQI, pxq, xweb
Index & components
The FDN (First Trust) ETF allows investors to access a basket of 43 US Internet stocks with a market capitalization of between $ 1bn and $ 800bn.
The first 10 stocks (including Facebook 7.8%, Amazon 9.7% and Alphabet 9.5%) account for more than half of the index's capitalization, ie 53%.
This index is fairly diversified from an industry perspective, including e-commerce players, Internet services, IT services / software but also financials, telecom companies and even health players. These are growth sectors which reshape existing industries through digitization and a dual expertise shared between the customer interface (digital) and business expertise (eg logistics for e-commerce, media for Internet services, cloud technology) and a certain marketing skill.
The success of these companies is also explained by the possibility of addressing a global market in an immediate way, with a sales process shortened to the maximum and without having to incur the costs and risks of a significant physical presence on the markets addressed. Despite the large market capitalizations of the major players, there is still a great potential as both the corporates digitizing and e-commerce are accelerating in the developed countries, and are still in the beginning in most emerging countries.
However, large competitors are emerging in some major emerging countries (such as Alibaba and Baidu in China), which is expected to strengthen in the years to come, particularly in China, India and Russia. On the other hand, governments are beginning to organize themselves in relation to the major Internet players who historically pay virtually no taxes outside the United States, and a turnover tax is being studied in Europe . The margins of the major players could therefore be somewhat reduced under the pressure of new taxes and competition in the coming years.
While the 10 major stocks in the index represent a true pole of stability, the other 31 stocks have strong potential and are likely to raise the index over the next few years with the emergence of new leaders.
Latest developments
FDN has been growing steadily between 2012 and 2018, and after rising by 37.7% in 2017, managed to show an increase of + 6.2% in 2018 despite the strong correction at year end which affected in particular Facebook and Amazon.
The main causes of this correction are to be found on the side of excessive valuations, problems of regulation of data user that could weigh on economic models and a much tighter market context, due to expectations of a slowdown in growth under the background of US-China trade war and rate hikes by the FED.
However, it remains an important reservoir of growth for this industry, but the US giants are now competing with the Chinese Alibaba, Baidu and Tencent, which are dominant in Asia.
