Technology is a bright spot for the market, unless you’re a foreign-focused exchange-traded fund.

The Technology Select Sector SDPR Fund (XLK) is up 12.5 percent on the year, handily beating the 4.6 percent return on the SDPR S&P 500 Trust (SPY). But XLK has nothing on the three U.S. internet-focused ETFs. The SPDR S&P Internet ETF (XWEB) is up 33 percent year-to-date, the First Trust Dow Jones Internet Index Fund (FDN) is up 30.3 percent and the Invesco NASDAQ Internet ETF (PNQI) has gained 23.8 percent.

But this year’s outperformance is strictly a U.S. phenomenon. Two of the biggest ex-U.S. internet ETFs, the KraneShares CSI China Internet (KWEB) and The Emerging Markets Internet & Ecommerce ETF (EMQQ), are up 0.20 percent and down 3.94 percent, respectively.

There’s a simple answer to at least part of the drag, and that’s the outperformance of the U.S. market versus Europe, Asia and the emerging markets, says Gavin Maguire, senior equity analyst at Briefing.com. A stronger U.S. dollar is also weighing on ex-U.S. markets.

Chinese stocks in particular are dinged by the growing trade war barbs, and the overall negative sentiment has hit the region’s technology sector. Diving into internet stocks specifically, Scott Kessler, director of equity research at CFRA who covers technology, says in recent months “there's been kind of a flattening out of the outperformance trajectory” for Chinese internet companies.

Two Chinese internet software and services companies he covers, Alibaba and Baidu, overall are “great” companies and hugely popular in China, he says, but there are questions about how they might perform outside the country. Their growth-plan executions have been inconsistent and that’s one of the reasons why they’re trading at a discount to their U.S. counterparts, he says.

U.S. tech behemoths have propelled gains in U.S. internet ETFs. Carin Pai, director of equity management at Fiduciary Trust Company International, says internet companies Netflix and Amazon.com in particular have supported these ETFs.

XWEB includes Amazon and Facebook in its portfolio, but they don’t crack the top 10. Instead, XWEB’s top holdings are Etsy at 1.9 percent, Web.com Group at 1.7 percent and Netflix at 1.6 percent. XWEB’s expense ratio is 35 basis points and it has $45 million in assets under management.

FDN’s top three holdings are Amazon at 10 percent, Facebook at 8.7 percent and Netflix at 6.6 percent. FDN’s expense ratio is 53 basis points and it has $9.3 billion in AUM.

PNQI’s three top holdings are Netflix at 9 percent, Amazon at 8 percent and Alphabet at 7.9 percent. Its expense ratio is 60 basis points and it has $708.9 million in AUM. One thing to consider with PNQI is that while 82 percent of its portfolio is in U.S.-based internet companies, it holds a few international companies listed on the NASDAQ, such as China’s Baidu. China comprises 16 percent of the portfolio’s country weighting.

The two foreign ETFs hold the Chinese version of FAANG stocks, in this case known as BATs—Baidu, Alibaba, and Tencent Holdings. KWEB’s top three holdings are Tencent at 9.8 percent, with Alibaba Group at 8.8 percent and Baidu at 8.5 percent. Its expense ratio is 72 basis points and it has $1.4 billion in AUM.

EMQQ’s Chinese holdings are 62 percent of the fund, and adding other Asian countries brings that continent’s total to 76 percent of the portfolio. Tencent is its largest holding at 7.6 percent, followed by Naspers at 7.5 percent and Alibaba at 7.1 percent. EMQQ has an expense ratio of 86 basis points and has $455 million in AUM.

Can It Play In The U.S.?

There can be a lot of short-term noise around internet stocks, and Maguire says the best way to evaluate them is to focus on the topline growth. While profitability is important, it hasn’t always mattered. Take Amazon, for instance. For years the company wasn’t profitable, but they were building investments in the right areas, he says.

“As long as you have faith in the direction that the company's going and the revenue growth in their investments is proving fruitful,” it’s a good sign, Maguire says.

Kessler says CFRA continues to like the FAANG stocks, but given the run up in prices he says they’re less constructive on them.

Despite their current weakness, Kessler says the Chinese internet companies are going to be part of the longer-term equation. Four of the top 10 largest global internet companies are Chinese: Baidu, Alibaba, Tencent and JD.com, an online specialty retailer, according to S&P Capital IQ. The other six are U.S.-based.

Kessler adds that the BATs have been tremendously aggressive with their internal and external investment.  “Because of that they're not as concerned about the quarterly changes in earnings. They want to create and dominate these new categories and in many cases are kind of mirroring what they're seeing going on in the U.S.,” he says.

But Kessler notes that some of the leading Chinese companies are essentially the same thing as U.S. companies—i.e., Alibaba is often thought of as the Amazon of China, while Weibo is categorized as the Chinese version of Twitter. So the question becomes when these companies try to expand beyond China will anyone use them or will they stick with the U.S. versions? Even though these are big, powerful companies in China, for the most part they haven't been tested outside of the controlled Chinese environment.

Chinese internet and technology stocks are much more highly correlated to the overall markets, says Pai from Fiduciary Trust Company International. In the U.S., technology stock performance contributes 40 percent to the overall market performance, but it can be 60 percent for Chinese markets.

When investing in foreign-related ETFs in general, but particularly with the internet-focused ETFs, financial advisors need to consider both the fundamentals of the individual holdings and the macro picture, Pai says. 

For now, Chinese internet companies may be getting hit by trade war concerns. Going forward, they also might have to fight to prove that they can be more than simply Chinese versions of U.S. companies.