It is not an uncommon scenario. A story stock, often of technology or Internet sector membership and of a Nasdaq listing, rockets deep into triple-digit territory (or further).
The result is a sexy stock that gets ample media attention, but along the way has become unobtainable to many ordinary investors. At the very least, it is difficult for a lot of retail investors to build sizable positions in the likes of Apple (AAPL), Google (GOOG) and yes, Netflix (NFLX). [ETFs Full of Triple-Digit Stocks]
When stocks reach stratospheric heights, such as the aforementioned have done, some investors turn to ETFs as ways of getting some upside exposure without the capital commitment of a $300, $500 or $1,000 stock. When Apple made its first run to $500, $600 and beyond, it was not uncommon for investors to use an ETF like the Technology Select Sector SPDR (XLK) to get in on some of the action. [Nasdaq ETF Better as Apple Slumps]
There have been times when Apple has been close to or just more than 20% of a single ETF’s weight, but let’s get back to Netflix. The stock touched a new all-time high at $395.63 Thursday before pulling back a bit to close higher by 16.5%. Shares of the online streaming entertainment company have nearly quadrupled in the past year. That has not meant much to ETFs.
Although Netflix soared Thursday, the two ETFs that hold the largest allocations to the stock, the PowerShares NASDAQ Internet Portfolio (PNQI) and the First Trust Dow Jones Internet Index Fund (FDN) , both closed slightly lower on the day.
It boils down to simple math. PNQI and FDN have weights of 3.4% and 3.1%, respectively, to Netflix. That is not enough to move the needle when some of the other holdings in those ETFs struggle even on a day when Netflix gains 16.5%. [ETFs for Your Inner Icahn]
PNQI and FDN showed last year that in the right environment for Internet stocks, these are fine ETFs being talked about. However, they are not “Netflix ETFs.”
There are Apple ETFs. There are even Amgen (AMGN) and Tesla (TSLA) ETFs. What there is not, at least not yet, is a legitimate Neftlfix ETF and that is a valuable lesson for investors to learn before using an ETF to participate in any future upside for the stock. [Clean Energy ETF Royalty]
First Trust Dow Jones Internet Index Fund
Tom Lydon’s clients own shares of Apple and Google.