This article was originally published on ETFTrends.com.
Not surprisingly, the recent deterioration in the FAANG trade is posing problems for scores of growth funds, including Internet-related exchange traded funds. The First Trust Dow Jones Internet Index (FDN) , the largest Internet ETF by assets, is sporting a fourth-quarter loss of nearly 16.50%.
Making matters worse for FDN is that the ETF is experiencing the ominous technical scenario known as the death cross. FDN's 50-day moving average recently fell below the fund's 200-day line. Weakness in the FAANG quintet is driving FDN's recent declines.
“The exchange-traded fund (ETF) saw its 200-day moving average move north of its 50-day moving average on Friday, Nov. 16,” said Schaeffer's Investment Research. “It was FDN's first death cross since February 2016, right around the time the shares were putting in a bottom around $57. Since that cross, the ETF enjoyed a slow burn higher, rallying more than 150% into its July 2018 record high of $147.73. In fact, after its Feb. 9 closing low of $57.73, the internet fund was up roughly 20% within the next month, settling at $67.88 on March 4, 2016.”
FDN ETF Details
The $7.41 billion FDN holds 41 stocks with Amazon, Facebook and the two share classes of Google parent Alphabet Inc. representing the ETF's top four holdings. Netflix, Inc. is also among FDN's top 10 holdings. Combined, those five securities represent approximately 32% of FDN's roster.
While FDN does not look particularly inviting at the moment, historical data indicate the fund often rallies after death crosses.
“Since 2008, there have been four death crosses for FDN, which began trading in June 2006. After those signals, the fund was up an average of 4.59% one month later, and was positive 75% of the time. That's even better than the ETF's average one-month return of 3.31% after a 'golden cross' -- when the 50-day moves atop the 200-day trendline -- thought to be a bullish technical signal,” according to Schaeffer's.
Investors have pulled $731.33 million from FDN in the fourth quarter.
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