Why is Google Missing From Most Internet ETFs?

Quick. What's missing form the following set of companies: Yahoo (YHOO), eBay (EBAY), Amazon (AMZN) and E-Trade (ET)?

If you answered, "Google (GOOG)," you can give yourself a pat on the back for your powers of observation.

Google is arguably the most powerful force on the Internet. It is beloved by everyone from Jim Cramer of Mad Money to Bill Miller of Legg Mason Value. (And yes... even at today's price!)

Yet, you can't find Google in some of the most well-known exchange-traded funds. The batch from the first sentence are the top holdings in the Merrill Lynch Internet HOLDRs (HHH). If you want the same type of exposure with Google in the mix, you'd need to look to the First Trust Dow Jones Internet Index (FDN).

The First Trust Dow Jones Internet Index (FDN) has Google as its top holding with a 10.6% weighting. Not surprisingly, it has had a better 1-year run than the Merrill Lynch Internet HOLDRs (HHH).

Before we get "googly-eyed" over the prospect of the Internet players we may love and use, investors may wish to take a gander at companies that help build the net.

Specifically, the Merrill Lynch Internet Architecture HOLDRS (IAH) has put together a pretty phenomenal run of its own. IBM (IBM), Cisco (CSCO), Apple (AAPL) and EMC (EMC) all factor heavily in the success Internet Architecture (IAH).

Disclosure Statement: As a Registered Investment Advisor, Pacific Park Financial, Inc. may hold positions in the ETFs, mutual funds and/or index funds mentioned above.

Comments

[Frank Li:]

The problem with Merrill Lynch HOLDRs is that they're not funds that are based on indexes that get updated. Rather, they're static baskets of stocks that go out of date. The Internet HOLDRs were launched before Google went public, and that's why it's excluded.

Bottom line: HOLDRs have a lousy structure.

Your positive comments about IAH might be misleading in this respect, because IAH is also a static basket of stocks that will also become unrepresentative of its sector in time.

2007 Jul 17 04:17 AM

[David Jackson:]

The lack of Internet ETFs may be due to the fact that "Internet" isn't really a sector (or a recognized sub-sector). The HOLDRs were an attempt to capture themes, and that's why they are somewhat arbitrary.

For alternative ETFs to the HOLDRs, check out the full listing of <b>Technology ETFs</b>.

See the comments there -- particularly on HOLDRs:
<blockquote>Merr... Lynch HOLDRs are fixed baskets of stocks that become less and less representative of their sectors over time. The Internet HOLDRs ETF, for example, doesn't include Google.</blockquote...

2007 Jul 17 04:54 AM