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A New Internet ETF Makes Inroads

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The stupendous global growth in Internet usage has been increasingly turning ETF issuers to this segment. Though the growth is gradually nearing the saturation level, the industry is in fine fettle. People are shelling out more online activities, per venture capital firm Kleiner Perkins Caufield & Byers. E-commerce usage increased 16% in 2017 versus 14% the prior year, marking 13% of total retail sales.

Most recently, O'Shares ETF Investments launched a new fund comprising Internet giants. We delve a little deeper into it.

Inside O’Shares Global Internet Giants ETF (OGIG)

The rules-based ETF looks to offer exposure to some of the largest global companies that generate most of their revenues from the Internet and e-commerce. Per the issuer, the fund taps companies that have above-average growth potential -- above 30%. A stable cash reserve position is also taken into consideration before picking stocks. The fund charges 48 bps in fees.

The fund holds 52 stocks in total and puts the largest weight in Alibaba (6.62%), followed by Amazon (6.53%) and Facebook (6.29%). Information Technology takes about 75.39% of the fund while Consumer Discretionary takes the almost the rest. As far as geographical exposure is concerned, United States takes the top spot with about 54.79% focus while China (31.35%), United Kingdom (5.20%) and Japan (2.71%) round out the top four positions.

How Does It Fit in a Portfolio?

A deluge of upbeat earnings results, plenty of emerging technologies and Trump’s tax cuts are boosting the overall technology space. And in this space, Internet and e-commerce is thriving with a lot of growth potential (read: Social Media ETFs to Gain as Twitter Prepares for S&P 500).

Social media is a booming corner right now. Per Statista, the number of monthly active social media users worldwide is expected to reach about 3.02 billion by 2021, “around a third of Earth’s entire population.”

The prospect of e-commerce is also equally bright. In 2017, global retail e-commerce sales came in at $2.3 trillion and it is projected to grow to $4.88 trillion by 2021, per Statista. E-commerce usage increased 16% in 2017 from 14% the prior year, marking 13% of total retail sales. As much as 49% of shoppers start their searches on Amazon.com, per Kleiner Perkins Caufield & Byers’ Mary Meeker.

Will the Fund See Success?

There are already products in the Internet space. These include SPDR S&P Internet ETF (XWEB - Free Report) , PowerShares NASDAQ Internet ETF (PNQI - Free Report) and First Trust Dow Jones Internet ETF (FDN - Free Report) . Investors should note that most of these funds are mainly focused on the United States. On the other hand, the newbie has a global exposure, which makes it stand out in the crowd (read: Fed, Trade & Global Politics to Rule June: 6 ETF Picks).

Moreover, PNQI and FDN charge 60 bps and 54 bps, respectively, which is higher than what OGIG promises to charge. Only XWEB becomes a winner in this area as its expense ratio is fairly low at 0.35%.

So, overall we can conclude that OGIG should be able to gather investors’ assets over the long run as the issuer definitely made a late entry in the space but packaged the product in a slightly different way. 

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