One recurring investment theme in 2010 has been the recovery of industries that were slammed during the most recent downturn. Financials and homebuilders are among the top performers of 2010, continuing to claw back ground lost in recent years. Another sector experiencing a similar “bounceback” is the media industry. Many analysts predicted a slow and steady death driven by decreased subscription rates for newspapers and drastic reductions to advertising budgets for television programing. But the industry has fought back from the brink of collapse and posted solid gains thus far in 2010. It appears that media firms may finally be figuring out how to survive in a digital world, and after surviving the financial crisis many are optimistic that the sector can keep up its hot-streak into the summer.
Behind The Turnaround
Several large media firms have experienced a great start to 2010, which has helped to buoy the media industry as a whole. An especially promising turnaround in the industry comes from the Home Shopping Network (HSNI). The firm returned to profitability after losing more than $38 a share in the same quarter in the previous fiscal year. This helped to send shares to an all-time high and boost the prospects for other firms that are dependent on consumer spending for their profits. Another winner as of late in the media industry has been RCN (RCNI), which has seen its shares increase by nearly a third since the start of the year. This boost came after the cable operator was approached by a private equity firm for a leveraged buyout. The deal was initially valued at $15 in cash, which was a 22% premium at the time of offering. This news has sparked excitement over a possible wave of consolidation in the industry, which has helped to send many shares of smaller media firms higher.
|Walt Disney Co.||5.2%|
For investors looking to play the media industry through ETFs rather than individual stocks, the PowerShares Dynamic Media Fund (PBS) presents an interesting option. The ETF consists of 30 holdings and tracks the Dynamic Media Intellidex Index, a benchmark that tracks the performance of U.S. media companies. The index is designed to provide capital appreciation by thoroughly evaluating companies based on a variety of investment merit criteria, including fundamental growth, stock valuation, investment timeliness and risk factors. PBS is evenly spread out among market capitalization levels, with large caps taking up 34.5% of the fund and small caps comprising 36%. The fund is also well diversified among “old media’ (such as News Corp), “new media” (such as Google), and service providers (such as Disney and HSN). The fund is up more than 12% this year and it has gained close to 90% in the past 52 weeks. PBS charges an expense ratio of 0.60%.
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Disclosure: No positions at time of writing