New Leadership In The Technology ETF Space? (FDN, PNQI, QQQC, CQQQ, XLK, IYW, VGT)
Eric Dutram: Tech companies have long been leaders of the market. Firms like Apple (NASDAQ:AAPL) have powered portfolios for quite some time, but there is now some speculation—and hard data—that suggests their reign over the best performing list is nearing an end.
This is particularly true after Apple’s latest earnings debacle, and some other large cap weakness on the earnings and guidance front. This trend has pushed the broad space to a sluggish performance to start 2013.
This is a pretty surprising development as the tech sector of the S&P 500 was, for quite some time, driving the market higher. However, seemingly as soon as the calendar turned to the New Year, tech began to lag, at least in the large cap space.
Looking at all the technology ETFs on the market, all of the worst performers come to us from the broad—read large cap focused—tech funds like (NYSEARCA:IYW), (NYSEARCA:XLK), and (NYSEARCA:VGT).
Beyond those underperformers, we see other ‘traditional’ tech products occupying the bottom of the list such as software and networking funds.
To me, this suggests that the old guard of the tech world is at an interesting crossroads, and that its leadership over the space—at least in terms of price gains—may be nearing an end.
That isn’t to say that technology ETFs have all been falling by the wayside though, as we have seen a trio of new product types take the mantle from the Apples of the world to start 2013.
The three best performing segments in the tech world have been heavily concentrated into a few sectors. These include social firms, the broad internet space, and emerging market technology. Most of these have crushed broad market expectations and a few have actually added more than double digits to start the year (read 5 Sector ETFs Surging to Start 2013).
This is pretty incredible given the broad sluggish performance in the technology world to start the year, and the widespread uncertainty over some of the top tech players and their outlooks for 2013. If the trend can continue, it could mean that for tech-focused ETF investors, now could be the time to take a closer look at some of the following funds for outperformance this year:
Emerging Market Tech ETFs
Leading the charge in this space are three funds, two of which have a China focus. These include (NYSEARCA:CQQQ), (NASDAQ:QQQC) and QGEM, which has a broad emerging market tech allocation.
All three have added more than 7% to start 2013, easily leading the way for the broad tech market to begin the year. However, investors should note that all three aren’t exactly popular with investors and have low assets and wide bid ask spreads.
This can increase the total stated cost of these funds, but clearly this hasn’t been much of an issue so far this year (see Can Anything Stop These Southeast Asia ETFs?).
In this corner, investors have two funds to choose from, the First Trust Dow Jones Internet Index ETF (NYSEARCA:FDN) and the PowerShares NASDAQ Internet Portfolio (NASDAQ:PNQI). Both of these ETFs have added over 7.5% to start 2013, while both have added more than 22% in the trailing one year period as well.
Clearly, the internet space is producing some new leaders for the tech market, thanks in part to their more diversified holdings profiles. Both of these have significant components in the consumer cyclical space—thanks to firms like Amazon (AMZN)—and their strong performances in the past year have certainly acted as a catalyst for the internet ETF space.
A newer, but increasingly popular, segment of the technology world is the social market. This is best represented by the Global X Social Media Index ETF (NYSEARCA:SOCL), but theETRACS Next Generation Internet ETN (NYSEARCA:EIPO) which has holdings in GRPN,LNKD and P, as well.
These two have also seen solid performances to start 2013 with both adding more than 7%. However, once again volume and assets are rather low for both so bid ask spreads—along with relatively high expense ratios—could increase total costs for investors (read Social Media ETFs: Time to Buy?).
Special Mention- Solid State Drives
While the space isn’t exactly famous to many investors, the solid state drive market has led the way for the tech world to start 2013. This corner of the market, which represents firms that are engaged in the production or development of this new age storage process, is best played by(SSDD).
This ETN from ETRACS has added more than 12% to start 2013, but it is heavily concentrated as it holds just 11 securities in total. Additionally, volume is extremely low so bid ask spreads may be wide, though its solid performance and the bright outlook for the space helps to make up for this to some extent.
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