Investing in domain names

One of the things that interests me is the emergence of new asset classes. Whether it’s making 16% per year in taxi cab medallions or improving your fixed income returns with p2p loans, I’m on the lookout for new sources of investing returns and diversification.

Readers of my Twitter stream and my weekly newsletter were alerted this week that both Bloomberg and Reuters will now be publishing an index that tracks the value of domain names (website addresses).

The Sedo IDNX tracks the latest trends in domain prices.

Domain names rapidly gained in value between 2006 and 2007, with prices peaking in November 2007 (an increase of 76% compared to January 2006) before falling by 34% in the subsequent five quarters. Domains have steadily regained their strength since then, climbing to an all-time high in May 2011.

Domain name index performance

For more info on the index, its composition, and performance, check out IDNX.com. More specifically,

On average, domain prices grew by 9.3% per year in the last 6 years, exhibiting a boom and bust pattern that closely resembles the path of the overall IT market (Source: Valuable Words: Pricing   Internet Domain Names)

The index has been assailed as not being representative enough or as putting investing in domain names in a bad light (high risk, low return) and maybe too correlated to other assets like the Nasdaq 100 (see here).

Read the response by the developer of the domain name index to these concerns.