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ETF News And Commentary

The U.S. online restaurant delivery service GrubHub (GRUB) made a shining debut on the New York Stock Exchange, soaring nearly 54% in the early trading hour on Friday. This rally has pushed the market capitalization of GRUB to over $3 billion. The company raised $192.5 million in its IPO at a price of $26, which is above its expected price range of $23–$25.

GrubHub in Focus

GrubHub, which also owns the Seamless food-ordering website, provides a Web and mobile platform to place takeout orders with restaurants. Customers could easily purchase their food online or through a few taps on a smartphone app rather than calling in the restaurant.

The company posted strong revenues of $137.1 million in 2013, up 67% from last year. This trend of increasing revenues will likely continue in the coming months thanks to rising mobile users and increasing demand for online food ordering services. The frequent use of tablets and smartphones has fueled growth in the online food ordering market (see: all the Technology ETFs here).

While GRUB’s net income is currently declining from $15.21 million in 2011 and $7.9 million in 2012 to $6.7 million in 2013, it remains profitable and is a standout candidate among many other loss-making food-ordering companies going public. In addition, the company had 3.42 million active diners and handled 135,500 daily orders at the end of 2013.

Further, GrubHub offers a unique combination of a niche industry tied to consumer and technology, suggesting brighter growth prospects.

Moreover, the rally in the first day of GrubHub’s debut marks a strong tech IPO since Candy Crush maker - King Digital Entertainment (KING) – that failed to attract investors last week (read: Candy Crush IPO Puts These ETFs in Focus).

ETFs to Watch

Based on the GrubHub’s successful market debut, many newly listed companies and Internet stocks will be in focus for the coming days. Investors should closely monitor the movement of these stocks and could take advantage, when it arises, in the days ahead with the following three ETFs:

First Trust Dow Jones Internet Index ((FDN - ETF report))

This is one of the most popular and liquid ETFs in the broad tech space with AUM of nearly $2.2 billion and average daily volume of around 421,000 shares. The fund tracks the Dow Jones Internet Composite Index and charges 57 bps in fees per year (read: Guide to Internet ETFs).

In total, the fund holds a small basket of 42 securities, which are pretty spread out across each component. Amazon (AMZN - Analyst Report), Facebook (FB - Analyst Report) and eBay Inc. (EBAY - Analyst Report) occupy the top three holdings at 19.17% of assets. The fund is tilted toward large caps at 60% while mid and small caps take the reminder. Also, the ETF puts more focus on growth stocks with 74% share.

From a sector look, Internet mobile applications account for more than half of the portfolio while Internet retail and software & programing receive double-digit exposure. The ETF has lost over 5% in the year-to-date time frame but has a Zacks ETF Rank of 2 or ‘Buy’ rating with a ‘Medium’ risk outlook.

Global X Social Media Index ETF ((SOCL - ETF report))

This ETF offers pure play in the global social media space by tracking the Solactive Social Media Index. Holding 28 securities in its basket, Tencent Holdings (TCEHY) and FB take the top two spots in the basket with at least 12% share each.

In terms of country exposure, U.S. firms take more than half of the portfolio while China (26%) and Japan (8%) round off the top three. The fund is diversified across various cap levels as large and mid caps take 45% and 42% share, respectively, while small caps take the remainder. Additionally, growth stocks dominate the fund’s returns.

SOCL has so far amassed $140.7 million in its asset base. The ETF charges 0.65% in fees and expenses and sees good volumes of roughly 228,000 shares a day. The fund is down over 12.5% so far this year but has a Zacks ETF Rank of 2 or ‘Buy’ rating with a ‘High’ risk outlook.

Renaissance IPO ETF ((IPO - ETF report))

This fund provides exposure to the largest and most liquid newly listed companies by tracking the Renaissance IPO Index. The fund holds 59 stocks and has attracted $31 million in AUM since its debut of more than five months ago. It trades in light volume of less than 43,000 shares, probably ensuring additional cost beyond the expense ratio of 0.60%.

Currently, Zoetis (ZTS - Analyst Report) and FB are the top two firms making up for nearly 9.84% and 8.27% share, respectively. Other stocks do not hold less than 5% of total assets. The product is tilted toward mid cap firms at 54% while large and small caps take the remainder with almost equal allocation. Here again, about half of the portfolio is growth oriented.

From a sector look, technology stocks make up for more than one-fourth share while energy and healthcare make up for 13% share each. The ETF has lost nearly 1% in the year-to-date time frame (read: Profit from the Booming IPO market with these ETFs).

Bottom Line

All the three products are growth-focused and are likely to move higher in the coming days. Though these funds might not include GRUB in their roster or have a small allocation, the bullish fundamentals for this new growth tech company will support the rally in these ETFs.

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