Internet ETFs Are Flexing Their Muscles

The Federal Communications Commission approved the policy known as "net neutrality" in a vote on Thursday. This procedure ensures that users will not be subjected to any government or corporate controls on open access to the internet.
This is welcome news to top internet companies such as Amazon Inc (AMZN) and Facebook Inc (FB), which are two of the web's most popular destinations. In addition, several internet-related ETFs were buoyed by this vote and have been showing signs of strength in the early stages of 2015.
The First Trust Dow Jones Internet Index Fund (FDN) is the largest ETF in the category with over $2.4 billion in total assets. FDN provides exposure to 42 underlying stocks, which include FB and AMZN in its top holdings.
To be included in the FDN portfolio, companies must derive at least 50% of their revenue from internet-related sales. This includes social media names, online retail stocks, streaming media companies, and search-related businesses. In addition, the underlying components of FDN must pass minimum liquidity and market capitalization levels to ensure top quality holdings.
Despite posting a mediocre return of just 2.44 percent last year, FDN has been firing on all cylinders to start 2015 and is already more than 8 percent higher this year.

Another top portfolio of internet stocks is the PowerShares NASDAQ Internet Portfolio (PNQI). This ETF tracks a broader basket of 93 companies, which include several small and mid-cap stocks as well. The index construction of PNQI follows a market-capitalization weighting structure that gives the largest share of assets to the biggest companies.
One more differentiating factor of PNQI is that it includes U.S.-listed foreign stocks such as Baidu Inc (BIDU) and Yandex N.V. (YNDX). This diversification provides a more robust portfolio of global stocks.
So far this year, PNQI has gained nearly 6 percent and is making headway to break out above its September 2014 peak.

Both funds make for an opportunity to hone in on a specific niche of the growing technology industry through unique indexes showing strong upside momentum.