ETF Picks For 3 Of The World’s Most Innovative Companies
Wed, Nov 7, 8:16 AM ET, by Michael Johnston
When it comes to the world of exchange-traded products, there are virtually no limits as to how investors can choose to play nearly every corner of the market. From compelling quant-based methodologies to hyper-targeted sector funds, there is an ETF to fit essentially every investor’s investment objective. But for those looking to gain access to some of the most promising companies on the market, a look at the Forbes’ “World’s Most Innovative Companies” list may present itself with several lucrative opportunities [see also How To Pick The Right ETF Every Time].
These companies are selected based on a number of qualitative factors, including cash flow valuations, projected earnings and an “innovation premium.” Firms that make the list are considered to not only be the most innovative companies today, but also those that have laid the groundwork to continue being pioneers in their industries. For investors wanting to cash in on the top three most innovative companies, we outline several ways to play:
Salesforce.com (CRM): Cloud Computing Genius
This software and programming giant takes first place on Forbes’ World’s Most Innovative Companies list, as the company has emerged as a compelling leader in the tech space. Salesforce.com focuses on providing enterprise cloud computing applications to businesses of all sizes and industries around the globe. Currently, CRM boasts a market cap of $20.55 billion and has gained a whopping 46% thus far in 2012 [see also High Tech ETFdb Portfolio].
For those looking to cash in on this cloud computing trailblazer, there are several ETF options. The S&P North American Technology-Software Index Fund (IGV) allocates 7.71% of total assets to CRM, and is also the cheapest pick with its expense ratio of only 48 basis points. But if size and liquidity are the ultimate selling points, the DJ Internet Index Fund (FDN) takes the cake, while still providing the second highest weighting to CRM. The only other ETFs that offer exposure to Salesforce.com are the SPDR MS Technology ETF, MTK and the Large-Cap Growth Equity Strategy Fund, RWG.
Alexion Pharmaceuticals (ALXN): Bio-Pharma Pioneer
This pharmaceutical juggernaut is one of the most well-known and respected biopharmaceutical companies in the world, focusing on developing therapeutic products for patients with severe and ultra-rare disorders. Founded in 1992 in Cheshire Connecticut, the company has already come out with the first and only therapeutic approved for patients suffering from the life-threatening PNH and aHUS diseases. Alexion recently acquired four pharmaceutical companies, and is well on its way to filling its pipeline with more innovative biopharmaceutical products [see also Vote For Obama Or Romney With These ETFs].
Currently, there are twelve exchange-traded products that offer exposure to Alexion, with the Nasdaq Biotechnology ETF (IBB) giving the company the highest weighting at 7.54%. PowerShares’ Dynamic Biotech & Genome ETF (PBE) is another compelling choice, as this fund tracks a fundamentally-weighted index that is designed to measure the performance of both biotechnology and genome companies in the United States. For those cost-conscious investors, the Russell Midcap Index Fund (IWR) may be a more attractive option, though the fund allocates the smallest weighting to Alexion out of the bunch. Other ETF options include:
- NYSE Arca Biotechnology Index Fund (FBT)
- Market Vectors Biotech ETF (BBH)
- Health Care AlphaDEX (FXH)
- DWA Technical Leaders Portfolio (PDP)
Amazon.com (AMZN): Online Retail King
There is perhaps no bigger name than Amazon in online retailing space, as this company has continued to be a dominating presence on both the tech scene and Wall Street. Founded in 1994, Amazon has grown to be a $107.4 billion company, with its shares exchanging hands nearly 3.3 million times a day. In addition to its online retailing business, the company has expanded its operations to developing one of the hottest products on the tech market: the Kindle e-reader. Considering this behemoth’s successful history and its promising outlook, it is clear that Amazon will surely continue to be a force to be reckoned with for years to come [see also TDIV: Where Technology Meets Dividends].
For those looking to add exposure to this online retail king, there are numerous ways to play. Based on weightings alone, Van Eck’s Market Vectors Retail ETF (RTH) is the top pick, as this fund allocates 9.84% of its assets to the company. First Trust’s FDN is another compelling option, with Amazon and Salesforce.com both making an appearance in the fund’s top five holdings. In regards to expenses, State Street’s XLY is the most economic option, as the fund charges only 0.18% and allocates nearly 6% of its assets to Amazon alone. Other ETFs with meaningful allocations to Amazon include:
- Nasdaq Internet Portfolio (PNQI)
- Consumer Discretion ETF (VCR)
- Dow Jones U.S. Consumer Index Fund (IYC)
- Large-Cap Growth Equity Strategy Fund (RWG)
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Disclosure: No positions at time of writing.
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