We’d made it through the worst of subprime—or so we thought. We fought off a traditional recession—or so we hoped. We now find ourselves wondering whether the new world “oil order” will snuff out the stock market’s last flame.
Whether the oil crisis can be managed is still unknown. Nevertheless, history shows that markets tend to overreact during a crisis. Just as assets can be artificially inflated in times of excessive greed, they can be devalued to incredibly low levels in times of excessive fear.
I’m not suggesting that the market is substantially undervalued at the moment, just that nobody ever became wealthy by avoiding risk altogether. It follows that there may be a nanosize silver lining in $4 or $5 gasoline, and I’m not thinking about the alternative energy space at the moment.
Instead, I’m thinking about the possibility that higher gasoline will inspire more consumers to shop online. I’m considering the likelihood that more investors will seek a broad range of services from the web. And I’m reasoning that more of the work force will use online solutions for meeting, communicating, and conducting business.
Here are a number of ETFs that could capitalize on our service-based economy.
The PowerShares NASDAQ Internet Portfolio (PNQI), the NASDAQ Internet Index, is a benchmark that compiles some of the largest U.S.-listed Internet companies, including Google, eBay, Amazon, Expedia, Priceline, and Yahoo.
You probably use one or more of their services on a daily basis, yet technology, particularly Internet companies, is noticeably volatile. Annually, the price movement may double that of typical growth-oriented companies.
Although the NASDAQ Internet Portfolio is heavily tilted toward a growth company orientation, it is fairly well distributed over small, midsize, and large market capitalization stocks. When it comes to growth, you’d likely prefer the small and midsize firms that have the potential to grow exponentially.
The iShares Networking Index Fund (IGN) was a big-time laggard during the bull market. And it hasn’t been bear-resistant since October 2007, either. That said, the fund did not revisit the March lows the way the S&P 500 or other areas of technology have. Apparently, networking giants like Cisco, Qualcomm, and Juniper have been quietly hanging tough.
It’s not that IGN doesn’t come without significant risk—it’s 1.5 times more volatile than the market at large. But you have to consider the possibility that it’s a solid investment in tech infrastructure.
We know that developed and developing nations need to upgrade their transportation systems, public utilities, water supply, and sanitation. Yet this cannot be achieved without improving communication and information services. The IGN is a premier choice for the long term.
If you want to talk about down and out, few industries have grown as cold as financial services. Extreme pessimism in banking coupled with a bearish environment has diminished the appeal of brokerage companies and the exchanges themselves.
Then again, is it fair to assume that global exchanges will continue trading? Is it fair to think that when the smoke clears on the worldwide financial crunch, investors might like the online investment companies?
Enter two possibilities: the Claymore/Clear Global Exchanges, Brokers Fund (EXB) and the iShares Dow Jones U.S. Broker-Dealers Index Fund (IAI). Each has been patrolling the depths alongside the entire financial services classification; each has lost nearly 33% from its high point.
Still, Goldman Sachs is leading the way in investment banking. NYSE Euronext is leading the way for international investing. And while there are beleaguered and battered brokers galore, an eventual turnaround, whether by mergers or by cleaner balance sheets, is likely.
Despite the haze and gloom over the economy, it would be hard to argue against the following themes: Online commerce is growing at a 15% to 20% clip; e-commerce is 7% of retail (and climbing); every financial crisis typically presents a unique opportunity to buy at a discount; true societal advancement depends on rapidly expanding information services and communication systems; and business-to-business Internet activity is expanding.
It follows that, if you’re able to enter positions over time, you may be handsomely rewarded for a stake in service-oriented ETFs.
— By Gary Gordon
Gary Gordon is president of Pacific Park Financial, an SEC-registered investment adviser in Aliso Viejo, Calif. He owns and operates www.ETFexpert.com and is the host of “In the Money” on 1700 AM in San Diego.
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