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Markets were rocked in Tuesday trading as worries continued to pile up over the Washington D.C.-standoff. Republicans and democrats still appear to be far apart on most issues, and there is little hope for either side compromising at this time.
Comments from President Obama didn’t help matters either, as the sell-off actually intensified during his talk with the press about the situation. Thanks to this, markets finished down about 1.1% for the Dow, and 1.2% for the S&P 500, while the tech-heavy Nasdaq tumbled by 2% on the day (read Play Political Gridlock with These 3 Volatility ETFs).
This stark underperformance in the Nasdaq was the real story of the session, as it suggested that technology names led the way on the downside. This was definitely the case too, as a number of hot, high beta technology names like Facebook (FB - Analyst Report) and Yelp (YELP - Snapshot Report) plunged by more than 6.6% on the day.
This was far in excess of other technology names—like Cisco or Apple for example—suggested that the bulk of the pressure was concentrated in the higher volatility corners of the technology world. It also could mean that traders are starting to pull money out of these high flyers, as concerns continue to build over a positive resolution to the current government crisis.
Should the trend continue, higher beta—and up until now strong performing—names in the technology world could clearly be victims of the D.C.-dysfunction. This means that sector ETFs tracking these high beta corners of the market are likely avoids in the short term, but also due for a sharp move higher if Washington gets its act together.
So, it might be a good idea to pay close attention to the trends in the following funds in the days ahead, as either way they could see some big moves, depending on if the crisis deepens, or if a solution is somehow found in short order:
First Trust Dow Jones Internet Index Fund (FDN - ETF report) - down 3.5%
This internet-focused ETF tumbled in Tuesday trading as its portfolio of high beta names struggled. The fund focuses on companies that derive at least half of their revenues from the internet, holding 41 stocks in its basket (see all the Technology ETFs here).
Top holdings include names like Google, Amazon, and Facebook, all of which account for less than 10% of assets. Since the fund focuses a bit less on ‘new tech’ names and has significant holdings in more established names, it wasn’t as hurt in Tuesday’s session.
Still, the ETF does offer a significant component to the new tech world, including FB, Netflix, and LinkedIn all in its top ten holdings. Thanks to this, FDN lost more than broad tech funds like XLK (down 1.6% on the day), but less than some of the more new tech-focused firms out there.
PowerShares NASDAQ Internet Portfolio (PNQI - ETF report) - down 4.1%
For another play on the internet market, investors have PowerShares’ PNQI. This ETF tracks the NASDAQ Internet Index, holding about 80 names in its basket, and charging investors 60 basis points for the exposure (see New Leadership in the Tech ETF Space?).
The fund has been a solid performer as of late, and it has significant holdings in many of the new age tech companies, including top ten allocations to FB, PCLN, YNDX, NFLX, and TRIP. The fund does still have allocations to the old guard though, as Amazon, eBay, and Google are all in the top five for holdings, accounting for more than 7.2% of assets each.
Many of the so-called web 2.0 companies led on the way up, leading to huge gains for PNQI. However, these big winners have obviously fallen on hard times in the debt debate, pushing this fund down almost 2.5 times as much as the broad tech index for Tuesday’s session.
Global X Social Media Index ETF (SOCL - ETF report) - down 4.3%
Social media stocks have come into focus as of late, largely led by the incredible resurgence of FB. This company, along with the rest of the sector, has seen strong performances, leading to huge gains for the space (See 3 Biggest ETF Winners from the Third Quarter).
One of the few ways to track this market in ETF form is with SOCL, a relatively new ETF from Global X that follows the Solactive Social Media Index. This benchmark holds about 30 stocks in its basket, putting heavy weights in both U.S. firms like Facebook (13.1%) and LinkedIn (9.1%), as well as international giants like Tencent (11.9%), and Sina (11.9%).
Thanks to this focus on the social media space and the heavy international exposure, SOCL was up over 50% for the first nine months of the year. However, in the recent turmoil, SOCL has struggled, leading some to wonder if this high beta sector’s run is over for now.
Although many technology stocks have little to do with the government gridlock, they have been punished more than most lately. Stocks in technology easily led the way on the downside in Tuesday trading, with huge moves lower seen in some once-high flying stocks (see instead 3 Hot Sector ETFs Surging to #1 Ranks).
Given this trend, this space could definitely be one to keep an eye on as the shutdown drags on, and the debt ceiling looms. The aforementioned ETFs could either be among the biggest losers in the crisis, or, if a speedy resolution is found, intriguing buys for those willing to take on some heavy volatility at this uncertain time.
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