I have spent my career analyzing investment strategies, from complex hedge fund tactics to simple index fund approaches. Few decisions generate as much consistent wealth as identifying a transformative economic trend and finding the most efficient vehicle to capture its growth. The strategy to buy FDN and hold it long term represents one of these rare, clear opportunities. It is not a speculative gamble on technology; it is a strategic investment in the foundational infrastructure of 21st-century commerce, communication, and consumption. FDN, the Dow Jones Internet Index ETF, provides targeted exposure to the established leaders of the digital economy. This approach leverages the power of a focused index to participate in the continued evolution of the internet, balancing growth potential with the discipline of a rules-based, diversified portfolio.
When I advise clients on long-term holdings, I look for assets with a powerful combination of a durable trend, a high-quality underlying index, and a cost-effective structure. FDN checks all these boxes. The iShares Dow Jones U.S. Internet ETF seeks to track the investment results of the Dow Jones Internet Composite Index. This index consists of leading U.S. companies involved in internet-related activities. The key to the “buy and hold long term” strategy with FDN is understanding that you are not betting on fleeting technological fads. You are investing in the blue-chip enterprises that have become essential utilities for the global digital economy. These companies possess immense competitive advantages, generate staggering cash flows, and continue to innovate and expand into new markets. Holding this ETF for decades is a bet on the enduring and expanding nature of internet connectivity and its integration into every facet of our lives.
Understanding the Engine: The Dow Jones Internet Composite Index
The entire thesis for buying and holding FDN rests on the quality and construction of its underlying index. This is not a vague, thematic grouping of “tech” stocks; it is a specific, rules-based benchmark.
The Dow Jones Internet Composite Index is a modified market-capitalization-weighted index. This means larger companies have a greater influence on the performance of the index, but the “modified” aspect helps prevent any single holding from becoming excessively dominant. To be included, a company must derive a significant portion of its revenue or assets from internet-related activities. This includes:
- Internet Services: Companies providing infrastructure, cloud computing, and networking (e.g., Broadcom).
- Internet Software: Firms developing applications, security software, and platforms for digital use.
- E-commerce: Businesses that primarily sell goods and services online (e.g., Amazon, eBay).
- Internet Content & Information: Providers of digital media, search engines, and social networking platforms (e.g., Meta Platforms, Alphabet).
This methodology ensures the index holds pure-play internet companies, offering a targeted exposure that broader technology ETFs, which include hardware and semiconductor firms, often dilute.
The Top Holdings: A Portfolio of Digital Titans
A review of FDN’s top holdings reveals a concentration in some of the most powerful and profitable companies ever created. This concentration is a feature, not a bug, for a long-term growth holding. As of my latest analysis, the top ten holdings typically constitute over 60% of the portfolio. This includes behemoths like:
- Amazon.com Inc. (AMZN): The undisputed leader in e-commerce and cloud computing through Amazon Web Services (AWS).
- Meta Platforms Inc. (META): owns the world’s largest social networking ecosystem, including Facebook, Instagram, and WhatsApp.
- Alphabet Inc. (GOOGL): The parent company of Google, dominating global search advertising, and YouTube, and a leader in cloud and artificial intelligence.
- Salesforce.com Inc. (CRM): The pioneer and leader in cloud-based customer relationship management (CRM) software.
- Netflix Inc. (NFLX): The transformative force in streaming entertainment and original content production.
- Adobe Inc. (ADBE): A critical software provider for digital media and marketing.
- Uber Technologies Inc. (UBER): A leader in mobility and delivery platforms.
These are not speculative startups. They are cash-generating giants with deep economic moats, global scale, and relentless ambition to expand into adjacent markets. By buying FDN, you gain ownership in all of them through a single transaction.
The Financial Mechanics: Performance and Cost
The long-term performance of FDN speaks for itself. Since its inception in June 2000, it has significantly outperformed the broader S&P 500 index. While past performance is no guarantee of future results, this track record demonstrates the powerful compounding effect of investing in a winning sector through a well-constructed index.
The Power of an Low Expense Ratio:
A critical component of the long-term hold strategy is minimizing costs. Every dollar paid in fees is a dollar that cannot compound for you. FDN has an expense ratio of 0.15%. This is remarkably low for a focused sector ETF and is a key advantage over actively managed internet funds, which often charge 0.75% or more.
Cost Comparison Over 20 Years:
Assume an initial investment of \text{\$100,000} with an average annual return of 10% before fees.
- With FDN (0.15% fee): \text{FV} = \text{\$100,000} \times (1 + (0.10 - 0.0015))^{20} = \text{\$100,000} \times (1.0985)^{20} \approx \text{\$645,320}
- With an Active Fund (0.75% fee): \text{FV} = \text{\$100,000} \times (1 + (0.10 - 0.0075))^{20} = \text{\$100,000} \times (1.0925)^{20} \approx \text{\$589,520}
The Cost of Active Management: The higher fee costs the investor \text{\$645,320} - \text{\$589,520} = \text{\$55,800} in future wealth. FDN’s low cost ensures more of the portfolio’s return compounds for the investor.
The Investment Thesis: Why Hold FDN Long Term?
My argument for a long-term hold strategy is built on several interconnected pillars that I believe will persist for decades.
1. The Secular Growth of the Digital Economy: The migration of commerce, advertising, entertainment, and work to online platforms is an irreversible, global megatrend. Internet penetration continues to grow worldwide, and existing users are spending more time and money online. FDN offers a direct conduit to cash in on this relentless growth.
2. The Power of Network Effects: Many of FDN’s top holdings benefit from powerful network effects—a phenomenon where a service becomes more valuable as more people use it. This creates immense competitive barriers, often called economic moats, that protect profits and market share. These are defensible businesses, not easily disrupted by new entrants.
3. Profitability and Free Cash Flow Generation: Unlike earlier internet eras, today’s leaders are highly profitable. They generate enormous amounts of free cash flow, which they use to reinvest in innovation, acquire competitors, and return capital to shareholders through stock buybacks. This financial strength provides resilience during economic downturns.
4. Diversification Within a Theme: While FDN is a sector ETF, it provides instant diversification across internet sub-sectors—e-commerce, advertising, cloud computing, streaming. This is far less risky than owning a single internet stock but far more focused than a broad market index.
Risk Analysis and Volatility
No investment is without risk, and a focused ETF like FDN carries specific considerations that a long-term investor must acknowledge and accept.
- Sector Concentration Risk: FDN is not diversified across the entire economy. A major, sector-wide downturn in technology and internet stocks will significantly impact the ETF’s value more than a broader market fund. The long-term holder must have the fortitude to endure these periods of volatility.
- Valuation Risk: These are often high-growth companies that can trade at premium valuations based on future earnings expectations. If growth slows, valuations can contract rapidly, leading to price declines even if the business remains healthy.
- Regulatory Risk: The size and influence of major internet companies have drawn increased scrutiny from regulators in the areas of antitrust, data privacy, and content moderation. Regulatory actions could impact future profitability.
The key for the long-term investor is to view these risks through a multi-decade lens. While they will cause significant short-term volatility, the core thesis of internet adoption and dominance is strong enough to overcome these cyclical challenges.
Implementation: How to Execute a Buy and Hold Strategy with FDN
Implementing this strategy requires discipline, not market timing.
- Allocate Appropriately: FDN should be a strategic holding within a diversified portfolio. For most investors, it should complement a core position in a broad US stock market index fund (like ITOT or VTI). A typical allocation might be 5-15% of the equity portion of a portfolio, depending on an investor’s risk tolerance and belief in the thesis.
- Purchase and Automate: The best approach is to make an initial investment and then set up automatic, recurring investments (e.g., monthly or quarterly). This practices dollar-cost averaging, ensuring you buy more shares when prices are lower and fewer when they are higher, smoothing your entry price over time.
- Reinvest Dividends: Enable automatic dividend reinvestment (DRIP). While the dividend yield is low, reinvesting these payouts accelerates the compounding process by purchasing more fractional shares.
- Ignore the Noise: The most important step is to hold. Do not react to short-term news, price fluctuations, or scary headlines about the tech sector. Your time horizon is measured in decades. Log in to your account once a year to review your allocation for rebalancing purposes, but otherwise, trust the process.
FDN vs. Broader Technology ETFs
It is important to distinguish FDN from other popular tech ETFs.
| ETF | Ticker | Focus | Key Holdings Include | Best For |
|---|---|---|---|---|
| iShares U.S. Internet ETF | FDN | Pure-Play U.S. Internet Companies | AMZN, META, GOOGL, NFLX, ADBE | Targeted exposure to internet services, software, and e-commerce |
| Technology Select Sector SPDR | XLK | Broad U.S. Technology Sector | AAPL, MSFT, NVDA, AVGO, CRM | Broader tech exposure, including hardware and semiconductors |
| Vanguard Information Technology ETF | VGT | Broad U.S. Information Technology | AAPL, MSFT, NVDA, AVGO, ADBE | Similar to XLK, a broad tech sector bet |
FDN is the purest play on the internet services theme, while XLK and VGT provide exposure to the wider tech universe, including hardware manufacturers like Apple and NVIDIA. The choice depends on whether you want to bet specifically on internet software and services or on technology as a whole.
Conclusion: A Strategic Holding for the Next Decade
The decision to buy FDN and hold it long term is a vote of confidence in the enduring and expanding role of the internet. It is a strategy that leverages the power of focused diversification, low costs, and the compounding of free cash flow from some of the world’s most dominant companies. While the journey will include significant volatility, the long-term direction of the digital economy remains profoundly upward. For the investor with a multi-decade horizon, the patience to ignore short-term noise, and the desire to own a piece of the foundational infrastructure of modern life, FDN represents a compelling, strategic, and efficient investment vehicle. It is not the only holding you should own, but it is one that can rightfully serve as a powerful growth engine within a well-constructed portfolio for years to come.
