If you could buy only one stock ETF, this would be it — and it doesn’t track the S&P 500

This internet ETF has outperformed not only the S&P 500 and Dow Jones Industrial Average, but also the Nasdaq. Read More...

Amid the coronavirus-led shutdown, the internet has become an increasingly important part of people’s lives and the economy. As a result, it just makes sense that stock market investors want to invest in internet-related stocks.

If you could buy only one ETF on a market pullback, maybe it’s not the S&P 500 ETF SPY, -1.80%, even though it tracks the benchmark index S&P 500 SPX, -1.74%. The ETF to consider is First Trust Dow Jones Internet Index Fund FDN, -1.52%.

Let’s explore this issue with the help of a chart.

Chart

Please click here for an annotated chart of the Dow Jones Industrial Average ETF DIA, -2.22%, which tracks the Dow Jones Industrial Average DJIA, -2.17%, compared with three other ETFs.

Note the following:

• The chart compares the Dow Jones Industrial Average ETF with the S&P 500 ETF; the Nasdaq 100 ETF QQQ, -1.25%, which represents the Nasdaq 100 NDX, -1.23% ; and the internet ETF.

• The chart shows that when the stock market dropped, the internet ETF outperformed the Dow by about 16%.

• The chart shows that during the recent rally, the internet ETF has outperformed the Dow by about 27%.

• In the market rally, the Nasdaq 100 ETF has been the star performer. However, the internet ETF has outperformed the Nasdaq 100 ETF by about 5.5%.

• The chart shows that the internet ETF fell in the Arora buy zone during the market drop, giving investors an excellent opportunity. Those investors are now sitting on about a 32% profit.

• The reason that the internet ETF has outperformed is that its stock holdings include Amazon AMZN, +0.46%, Facebook FB, -2.38%, PayPal PYPL, +1.91% and Netflix NFLX, +1.49%.

How to buy

For those who are itching to buy, start with a small stake — scale in. As a note of caution, the emphasis is on “scale in.”

Answers to your questions

Answers to some of your questions are in my previous writings. Please click here for details.

Disclosure: Subscribers to The Arora Report may have positions in the securities mentioned in this article or may take positions at any time. Nigam Arora is the founder of The Arora Report, which publishes four newsletters. Nigam can be reached at [email protected].