ETF Plays On The Microsoft-Yahoo! Deal

by on July 29, 2009 | ETFs Mentioned:

News broke earlier today that Microsoft and Yahoo! have reached a major search engine deal that will allow Microsoft to become the search engine behind Yahoo!, which will become the worldwide exclusive relationship sales force for both companies’ premium search advertiser. The deal is obviously a blockbuster, one that both companies believe will change the search landscape (many third parties think so too). According to the official press release, advertisers and publishers would benefit significantly from a unified platform and the scalability all around. Tech Crunch believes this is the “core advantage of the deal in terms of being able to compete with the dominant rival to both companies, Google.” The length of the agreement is also somewhat surprising: “10 years, which is like an eternity in the Internet space.”

Bing HomepageYHOO shares plunged more than 10% in early trading, while MSFT was essentially flat, as many investors apparently believe that Microsoft is the big winner in this development – getting the right to extend Bing (which already has a lot of momentum), without inheriting all of the headaches that have plagues Yahoo! in recent years. GOOG was down about 1% in recent trading.

Many technology ETFs are likely to see heavy volumes and big moves in coming sessions as well as news of the deal is fully digested by Wall Street:

  • SPDR Technology Select Sector Fund (XLK): With heavy concentrations in MSFT (9.4%) and GOOG (4.7%), XLK should be in focus as the full impact of the deal filters out.


  • iShares Dow Jones U.S. Technology Sector Index Fund (IYW): IYW also has huge holdings in both MSFT and GOOG (11.0% and 6.2%, respectively), as well as a 1.3% interest in YHOO.


  • First Trust Dow Jones Internet Index Fund (FDN): GOOG is FDN’s largest holding at 9.5%, while YHOO represented about 5.9% of the fund’s holdings (prior to Wednesday’s declines). FDN was recently down about 1.1%.


  • Merrill Lynch Internet HOLDRS (HHH): HHH has a major position in YHOO, with the search engine stock accounting for 17.4% of its holdings. HHH had recently dropped more than 3%, due primarily to declines in YHOO shares.


Disclosure: No positions at time of writing.