Make Money in Rapidly Growing Internet Companies -- the Easy Way

Exchange-traded funds offer a convenient way to invest in sectors or niches that interest you. If you expect Internet-related companies to keep growing briskly over the coming years, the Dow Jones Internet Index ETF (NYS: FDN) 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 Internet Index ETF's expense ratio -- its annual fee -- is 0.60%, which is a bit higher than many ETFs, but also considerably lower than the typical stock mutual fund.

This ETF has performed rather well, outperforming the S&P 500, on average, over the past three and five years. 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 18%, this fund isn't frantically and frequently rejiggering its holdings, as many funds do.

What's in it?
Plenty of Internet-related companies had strong performances over the past year. Akamai Technologies (NAS: AKAM) , for example, is up 20%. It has topped many investors' expectations recently, but still leaves some worried about shrinking margins and slowing growth. Expectations are not high for its upcoming earnings report later this month, but its recent acquisitions may end up boosting its performance and its long-term prospects seem strong, as the demand for content delivery is expected to grow robustly. (NAS: PCLN) , up 40%, has been enjoying explosive growth in its international division. Some see the stock as overvalued, but it has long looked that way, while it has kept growing. The company is focusing a little more on its traditional travel-booking services, as well.

Other companies didn't do as well last year, but could see their fortunes change in the coming years. Netflix (NAS: NFLX) cratered last year, and is down some 52% now. Investors were dismayed by management blunders as a Qwikster service was announced and then canceled, and price increases were seen as too severe. The company is still trying to steer more customers toward its more lucrative streaming service, which is smart, but it's also facing some strong competitors.

E*TRADE Financial (NAS: ETFC) , meanwhile, is down about 31%. It has been beefing up its credit quality, though, as well as its profitable financial advisor services. It's not a pure play on brokerages as it also offers banking services and made a lot of mortgage loans, but it's still a major brokerage, poised to benefit as the stock market heats up again eventually.

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 5 ETFs That Could Soar in 2012. And if you're looking for some great investments beyond ETFs, consider these12 Dividend Stocks for 2012.

At the time this article was published Longtime Fool contributorSelena Maranjian, whom you canfollow on Twitter, owns shares of Netflix, but she holds no other position in any company mentioned.Click hereto see her holdings and a short bio.Motley Fool newsletter serviceshave recommended buying shares of Netflix and The Motley Fool has adisclosure policy.We Fools may not all hold the same opinions, but we all believe thatconsidering a diverse range of insightsmakes us better investors. Try any of our Foolish newsletter servicesfree for 30 days.

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