Twitter, the seven-year-old social networking and microblogging service company, is going public in a much-anticipated initial public offering that some say could be the biggest IPO since Facebook, and the Global X Social Media ETF ( SOCL | D-30 ) is ready to add it to its portfolio.
While not much is known about Twitter’s IPO plans, since the paperwork it filed with regulators kicking off the process is confidential, the Wall Street Journal reported that the company is valued by some estimates at $9 billion—an impressive number even if a far cry from Facebook’s valuation of about $100 billion when it went public a year and a half ago.
But when it goes public, Twitter will join a booming segment of the market anchored by Facebook, whose share price has reached record highs in recent days. That share-price movement all but puts behind it its own infamous IPO on May 17, 2012, that was mired by technical glitches and was followed by a precipitous share price decline in the following months.
Since the beginning of the year, Facebook’s share value has nearly doubled, riding, among other things, strong upward momentum in equities.
SOCL is the only ETF in the market today to focus exclusively on social media companies, and as such, it was one of the first to add Facebook to its portfolio just five days after the social media giant went public. Today Facebook represents about 12 percent of the fund’s exposure.
This time around, the ETF, which tracks a Solactive AG modified market-cap-weighted index, will again lead the charge in owning Twitter shares. But details regarding the full allocation are still unavailable. It’s safe to say that Twitter’s weighting in SOCL will be based on the company’s market capitalization after the IPO, given the indexing methodology.
While the fund remains small, with about $25 million in assets, its performance has been nothing short of blockbuster so far this year. The fund has benefited from Facebook’s rally, and overall strength in equities, tacking on gains of 47 percent year-to-date, far outpacing the broad stock market.
“Social Media in general is performing very well, as illustrated by SOCL,” Bruno del Ama, head of Global X Funds, told IndexUniverse.
“Twitter obviously wants to come to market in an environment where social media companies are demonstrating that they can implement on their business models by growing rapidly, showing significant profitability and the high moats or defensibility of these ‘social network’ businesses,” he added.
It’s worth noting that SOCL is very narrowly focused, and it doesn’t include big technology names like Apple, Microsoft and IBM.
Instead, it invests in companies like LinkedIn, Tencent and Sina, and more than half of its portfolio is allocated to non-U.S. names, according to IndexUniverse ETF Analytics.
That’s to say that its performance is not on par with the broad technology sector. In fact, the Thomson Reuters Global Technology Index, for instance, is up only 13 percent year-to-date.