The 'Facebook ETF' Doesn't Look So Gimmicky Anymoreby
The Global X Social Media Exchange-Traded Fund (SOCL ) may need its own social media campaign. Its performance so far this year is tweet-worthy: In July alone, the fund rose 16 percent, and it's up 37 percent for the year. That tops the 12 percent return for the popular Technology Select Sector SPDR ETF (XLK ) and the S&P 500's 20 percent rise. Yet the ETF has just $11 million in assets.
The fund, which launched in late 2011, was dubbed the Facebook ETF for adding Facebook to its portfolio five days after the stock's initial public offering -- it was the first ETF to hold the stock. Before adding Facebook, the ETF was branded a “gimmick” in this CNN Money article and as deserving of the “brush-off” in this MarketWatch article . Bloomberg.com also ran a skeptical story about the fund.
The ETF is proving to be more than a gimmick or repackaging of existing tech plays with a flashy name. SOCL has one of the highest-octane Top 10 holdings lists in all of ETF-land, and nearly all of its holdings lack a significant presence in mainstream tech ETFs. For example, XLK has just one stock that overlaps with SOCL -- Google (GOOG ); Google is a four percent weighting in SOCL. It has about the same small overlap with the iShares MSCI ACWI ex U.S. Information Technology ETF (AXIT ). SOCL has low correlations to both ETFs, meaning that it doesn't track their performance closely.
That, along with the ETF's performance this year, is why SOCL is more than a cute niche product. It's a legitimate offering for aggressive investors who want to participate in some of the fastest-rising companies in social media. Here's a look at SOCL's top 10 holdings, which make up 81 percent of the ETF. SOCL has the most exposure of any ETF to all but one stock on this list.
1. Facebook (FB ): Social networking site Facebook, whose stock is up 43 percent this year, is an 11 percent weighting in the fund. Its latest earnings exceeded expectations and silenced skeptics who questioned its ability to make money. The stock jumped 55 percent in the past month to break through its $38 IPO price.
2. Tencent Holdings Ltd. (700:HK ): Tencent takes up another 11 percent of the fund's assets and is up 45 percent this year. Tencent is China’s largest Internet and instant messaging company, with over 650 million users . This holding is indicative of SOCL’s global exposure -- about half of the portfolio is international.
3. Sina Corp. (SINA ): Sina makes up yet another 11 percent of the fund and is up 50 percent this year. Sina is a Chinese Twitter-like site, which boasts 100 million users.
4. LinkedIn Corp. (LNKD ): Professional social networking site LinkedIn is a 9 percent weighting and is up 105 percent so far in 2013. LinkedIn has 225 million users.
6. Pandora Media Inc. (P ): The fund has a 5 percent stake in Pandora, which is up 108 percent in 2013. Pandora is an Internet radio service with 150 million users.
7. DeNA Co. (2432:JP ): Dena is another 5 percent weighting in the fund. It has fallen 30 percent this year -- the only stock among the fund's top 10 in negative territory. DeNA is an e-commerce website and cellphone gaming platform with 45 million users.
8. Groupon Inc. (GRPN ): Groupon is a 5 percent weighting and is up 79 percent on the year. It is a “deal of the day” website with over 35 million registered users.
9. Nexon Co. (3659:JP ): Nexon is a 4 percent weighting and is up 48 percent on the year. The company is a developer and publisher of video games currently headquartered in Japan but founded in South Korea. It has 71.5 million users.
10. Google Inc. (GOOG ): Internet search engine Google, a 4 percent weighting, is up 28 percent so far in 2013. SOCL is one of 140 ETFs with decent exposure to Google.
There are other well-known social media stocks deeper in the ETF's portfolio, such as Zynga Inc. (ZNGA ), which is up 27 percent for the year, Yelp Inc. (YELP ), up 200 percent, and Angie’s List Inc. (ANGI ), up 95 percent. SOCL has the most exposure of any ETF to all of these companies. (If Twitter goes public – and there is talk that it will – you can bet SOCL will be the first ETF to own it and will have the most exposure.)
SOCL marches to the tweet of its own drummer. An interesting attribute of the fund is its lack of correlation to the S&P 500 -- it moves with the broad U.S. market to a smaller degree than other tech ETFs. ETFs investing in emerging markets and Africa have a greater correlation with the S&P 500 than SOCL does.
Buying an ETF like SOCL after such a big run can be risky, and it is about twice as volatile as XLK, which has $11.5 billion in assets. In a world where markets increasingly move in lockstep, there's value in having a less correlated ETF for diversification and risk management, however. The fund charges 0.65 percent in expenses and trades at a fairly wide spread, meaning that the prices at which you can buy or sell are pretty far apart. Any investor purchasing an ETF like this should use a limit order to try to get the best price.