Investopedia: Is The New Smartphone ETF A Smart Idea?

Smartphones have proved to be a breakaway success in consumer electronics - not to mention a multibillion-dollar market opportunity. Not surprisingly, this has fueled runs in a number of stocks and significant investor interest in playing the ecosystem. Now, investors have an easier one-stop shop for this play with the introduction of First Trust's Smartphone Index Fund (Nasdaq:FONE). (For some background on the smartphone market, check out The Apple Ecosystem.) 


Smartphone ETF: How It's Built
FONE is an exchange-traded fund (ETF) that is designed to closely track the Nasdaq OMX CEA Smartphone Index. This index includes a variety of companies organized into three primary categories - handsets, software applications and hardware components, and network providers - with 45% weightings to the first two and 10% to the last. Within each segment, the components are equally weighted.

The Good 

There is no question that FONE offers a diversified play on a broad definition of the smartphone market. All in all, the fund holds 73 positions with the top 10 positions amounting to about 28% of the total holdings. While the expense ratio is something of an issue, it is hard to see how a retail investor could assemble anything close to a diversified portfolio of similar component, service and equipment stocks and not spend more in commissions.

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