Global X Funds, a New York-based ETF provider, has launched the world’s first ETF to track companies operating in the social media sector.
Global X Funds has launched world’s first social media ETF.
The Global X Social Media Index ETF (SOCL) will track a diversified, proprietary benchmark of global social media stocks, including names such as Groupon, LinkedIn, Pandora, Google, Tencent, Sina and Netease.com
The fund’s underlying index is designed to reflect the performance of companies involved in the social media industry, including companies that provide social networking, file sharing, and other web-based media applications.
The social media industry continues to grow rapidly, providing new ways for people to connect, share, shop, create and network. SOCL attempts to capture this global industry in a single portfolio.
User growth in social media has sky-rocketed; a Pew Research Centre survey says that in 2011 approximately 65% of adult internet users said that they use a social networking site, which is nearly double the percentage that reported social network usage in 2008.
An increase in mobile phone usage has further propelled social media, with nearly 40% of social media users accessing such content directly from their mobile phones.
Not only are individual users tapped into this phenomenon, but approximately 84% of Fortune 100 companies utilise branded social media channels, while nearly 81% of the top Asian companies have expanded into branded social media channels, according to a 2011 study conducted by Burson-Marsteller.
In the US social media use by small businesses has grown to include nearly one out of every three businesses, demonstrating rapid growth with room for further expansion.
“SOCL can provide an efficient way to tap into this global, dynamic sector,” said Bruno del Ama, chief executive officer of Global X Funds. “As the industry continues to expand through IPOs, the index will capture these new companies shortly after their public debut, providing a relatively cost effective way to gain exposure to the social media industry.”
Initially, the fund’s weighting consists of 26% US companies, 37% Chinese companies, including 10% apiece for internet giants Tencent Holdings, Sina Corp and Netease.com, and 19% Japanese stocks, with the rest coming from Russia, Germany, India, Taiwan, Italy and the UK.
The US portion includes Google, which is weighted at 4.75% due to its clout with other businesses. That is the same weighting given to Pandora Media and to Groupon. LinkedIn is weighted at 3.5%.
These weightings are likely to shift more towards the US once new holdings are added, in particular, after the hotly anticipated IPOs of social media behemoths, Facebook and Twitter.
The fund is, in essence, a ‘one-stop shop’ for investors wanting to gain exposure to this highly exciting but also much hyped sector.
The phenomenal performance of recent social media IPOs – most notably that of LinkedIn, the business-focused networking site for professionals, which was initially priced at about $45 per share but surged on its first day of trading to close to at over $100 – will surely make the fund popular with day traders.
Some are concerned, though, that social media is fast becoming a repeat of the dot com tech bubble and that these stocks are destined to crash in the near future.
Indeed, valuations are punchy, despite the fact that many are still unprofitable and have little to no prospect of getting out of the red anytime soon.
As a basket of stocks, the ETF will smooth out the volatility of individual names; however, it is sure to reflect investors’ extremes of sentiment – meaning investors can expect a bumpy ride.
While this is the world’s first social media ETF, investors might also like to consider the UBS ETRACS Internet IPO ETN or the First Trust Dow Jones Internet Index ETF which track the performance NYSE and Nasdaq-listed internet-related companies.