Market Overview

A Surprising ETF Stands Firm Amid Trade War Controversy

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A Surprising ETF Stands Firm Amid Trade War Controversy

Plenty of exchange traded funds were drubbed in May as traded tensions between the U.S. and China, the world's two largest economies, reached a fevered pitch. Among the worst offenders were technology and China funds.

What To Know

While the trade imbroglio pinched a slew of growth and technology funds, some ETFs in this group were surprisingly sturdy in May due to their components' lack of revenue dependence on China. The O’Shares Global Internet Giants ETF (NYSE: OGIG) is a member of that group.

Internet stocks weren't impervious to the broader market swoon, but OGIG was less bad than some than broader technology and China indexes last month.

"Tech and Chinese stocks underperformed during recent trade escalation,” according to O'Shares. “The Nasdaq 100 and MSCI China Index underperformed the S&P 500 by nearly 2% and over 5%, respectively in May.”

Why It's Important

OGIG tracks the O’Shares Global Internet Giants Index. As its name implies, that's a global benchmark with exposure to nine countries, but the U.S. and China combine for almost 89% of OGIG's geographic weight.

What is important, particularly with trade tensions still running high, is that OGIG's exposure to U.S. internet stocks is more than triple its weight to comparable Chinese names. Just two of OGIG's top holdings, Tencent Holdings Ltd. (OTC: TCEHY) and Alibaba Group Holding (NYSE: BABA), are Chinese companies while six of the fund's top 10 holdings are U.S companies.

Consider Google parent Alphabet Inc. (NASDAQ: GOOG) and Facebook Inc. (NASDAQ: FB). Those companies derive 2% and 9%, respectively, of their revenue from China, but Tencent depends on its home country for 97% of its sales, according to O'Shares.

Facebook and Alphabet are OGIG's second- and third-largest holdings, respectively, combining for about 10% of the ETF's weight.

What's Next

Over the past month, OGIG is down less than 1% while a large, dedicated China internet ETF is lower by 8.3%. The O'Shares is positioned to benefit if Chinese internet names and continue performing less poorly if domestic internet and social media stocks continue topping their Chinese rivals.

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