Amazon is Dragging These ETFs Higher
Shares of e-commerce giant Amazon.com (NASDAQ: AMZN) are trading lower by about 1.5 percent in late trading Tuesday, backing off a bit from the all-time set on Monday.
Trading at an astounding 154.29 times forward earnings and nearly 123 times its price to earnings growth, according to Finviz data, Amazon is not short for critics that assert the stock is too richly valued.
On the other hand, the stock does not appear to be short for momentum and the tailwinds that Amazon is benefiting from are helping lift to ETFs that feature decent allocations to the stock.
As Amazon has put added pressure on competitors ranging from Barnes & Noble (NYSE: BKS) to Best Buy (NYSE: BBY) to GameStop (NYSE: GME) over the past year, the stock has surged over 50 percent. In the past six months, shares of Amazon are up 19.3 percent, returns that have been nearly quadruple that of the PowerShares QQQ (NASDAQ: QQQ).
Amazon is QQQ's fifth-largest holding, but the Nasdaq 100 tracking ETF allocates just 3.87 percent of its weight to the Washington-based company. By comparison, Apple's (NASDAQ: AAPL) weight in QQQ is quadruple that of Amazon's. Microsoft's (NASDAQ: MSFT) is nearly double that of Amazon's.
That scenario indicates there are other ETFs that stand to benefit more if Amazon continues its parabolic rise. A prime example is the First Trust Dow Jones Internet Index Fund (NYSE: FDN). Home to almost $655 million in assets under management, FDN features a 7.78 percent weight to Amazon. That is by no means excessive, but that exposure has been enough to help FDN move somewhat closely with Amazon. Over the past six months, FDN has gained 16.7 percent.
FDN has two advantages, one that is readily apparent and one that may come as a surprise to some investors. While price tag should not be the ultimate factor in deciding whether to buy a stock or ETF, FDN does trade for around $40. Add up the ETF's weights to Google (NASDAQ: GOOG), Amazon and Priceline (NASDAQ: PCLN) and FDN becomes a cost-efficient way for regular investors to get ample exposure to triple-digit darlings as those stocks combine for over 22 percent of the fund's weight.
Second, over the past 30 and 90 days, FDN has outperformed Amazon and Priceline. Over the past three months, FDN has outpaced Google, its largest holding.
The other ETF Amazon's ascent is benefiting is the unheralded PowerShares NASDAQ Internet Portfolio (NASDAQ: PNQI). Amazon is PNQI's largest holding at just over eight percent and that has been enough to help the ETF gain almost 13 percent in the past six months.
Like FDN, PNQI represents an viable option for gaining exposure to multiple triple-digit stock as Amazon, Baidu (NASDAQ: BIDU), Google and Priceline combine for over 31 percent of the fund's weight. In the past month, PNQI has gained about 8.2 percent, meaning the fund has outpaced Amazon and Google.
PNQI could be criticized for an average daily volume that is under 12,000 shares. However, it should be noted that of the fund's top-10 holdings, which combine for 59 percent of the total weight, Priceline is the least heavily traded with average daily volume of 768,000 shares. That means PNQI is sufficiently liquid and should not penalize investors with wide bid/ask spreads.
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