How to Make Money in Fast-Growing Internet Stocks the Easy Way

Exchange-traded funds offer a convenient way to invest in sectors or niches that interest you. If you expect the Internet to stick around and for companies making the most of it to thrive over time, the PowerShares NASDAQ Internet ETF (NAS: PNQI) could save you a lot of trouble. Instead of trying to figure out which companies will perform best, you can use this ETF to invest in lots of them simultaneously.

The basics
ETFs often sport lower expense ratios than their mutual fund cousins. The PowerShares ETF's expense ratio -- its annual fee -- is 0.60%. That's more expensive than many ETFs but still cheaper than most mutual funds.

This ETF has performed well, but it's also very young (and, it should be noted, still very small), with just two full years on the books. Both in 2009 and in 2010, it more than doubled the S&P 500's return. As with most investments, of course, we can't expect outstanding performances in every quarter or year. Investors with conviction need to wait for their holdings to deliver.

With a low turnover rate of 20%, this fund isn't frantically and frequently rejiggering its holdings, as many funds do.

What's in it?
Several of this ETF's components made strong contributions to its performance over the past year. Chinese mobile and online specialist Sina (NAS: SINA) gained about 41% over the past year, for example, while Chinese search giant Baidu (NAS: BIDU) rose 8%. But these Chinese companies and others -- such as (NAS: SOHU) , which shed about 17% for the ETF -- face a lot of uncertainty right now, as the Chinese government is considering new regulations for some companies. It's not yet clear which ones will be affected, but it's a reminder that the rules can change quickly and unfavorably in some global markets.

Other companies hurt the ETF's returns last year but could have an effect in the years to come -- or not. Akamai (NAS: AKAM) , for instance, shed about 60%, as it has struggled to deliver on expected growth and has had some of its thunder stolen by competitors like Level 3 Communications (NAS: LVLT) and LimeLight Networks (NAS: LLNW) . The sell-off in Akamai has been so strong, though, that some now see it as undervalued.

The big picture
Demand for Internet services isn't going away anytime soon. A well-chosen ETF can grant you instant diversification across any industry or group of companies -- and make investing in and profiting from it that much easier.

Learn aboutthe best dividend ETFs. And if you're looking for some great investments beyond ETFs, consider these10 stocks for your retirement portfolio.

At the time thisarticle was published Longtime Fool contributor Selena Maranjian owns shares of Baidu and Akamai Technologies, but she holds no other position in any company mentioned. Click here to see her holdings and a short bio. Motley Fool newsletter services have recommended buying shares of Sina, Baidu, and Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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