ETFs Tuned Into Netflix Reap Rewards

October 23, 2013

Momentum investors drove the stock’s price in the third quarter.

Netflix Inc. said on Monday that its third-quarter net income quadrupled, largely on an increase in its U.S. customer base. And with shares of the self-professed “world's leading Internet television network” catapulting higher, so too are ETFs that hold Netflix.

The Internet TV broadcaster said it added 1.3 million U.S. customers in the third quarter and ended the period with 29.93 million paying domestic users. Its net income rose to $32 million, or 52 cents per share, up from $8 million, or 13 cents per share, in the same year-earlier period. Revenue jumped 22 percent to $1.1 billion.

Netflix’s stock is up 23.57 percent for the previous three months and an astounding 249.6 percent—or 3 1/2 times—year-to-date.

During a conference call, Rich Greenfield, an analyst at BTIG Research, asked Netflix CEO Reed Hastings about the stock’s meteoric rise and Hastings’ comment about the fact that there's a little bit of a sense of euphoria such as there was in 2003.

“Every time I read a story about Netflix is the highest-appreciating stock on the S&P 500, it worries me because that was the exact headline that we used to see in 2003,” said Hastings.

“We have a sense of momentum investors driving the stock price more than we might normally. There's not a lot we can do about it, but I wanted to honestly reflect upon that.”

Related ETFs such as the $1.7 billion First Trust DJ Internet Index Fund (FDN) and the $141 million First Trust ISE Cloud Computing Index Fund (SKYY | B-34) have returned 13.39 percent and 10.74 percent for the past three months, respectively, and 42.2 percent and 27.18 percent year-to-date, according to data compiled by IndexUniverse.

SKYY has a 4.24 percent exposure to Netflix, while FDN has a 3.61 percent exposure to the company.

Also, the $923.1 million First Trust Consumer Discretionary AlphaDex ETF (FXD | B-66), which has a 1.78 percent exposure to Netflix, gained 6.30 percent within the past three months and 34.80 percent year-to-date.

Also, the $715.5 million Guggenheim S&P 500 Pure Growth ETF (RPG | A-65) is up 7.19 percent in the past three months and 34.54 percent year-to-date. RPG has a 2.6 percent exposure to Netflix.

FDN_vs._SKYY_vs._FXD_vs_RPG_YTD_2013

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