Facebook, which has lost more than half of its value in the past three months, might have lost its image as social media’s wonder child, but the company is still large enough to be eligible for inclusion in the Nasdaq 100 Index as early as September.
Having Facebook added to the index would affect at least eight ETFs—with combined assets of more than $35 billion, the biggest of which is the $34 billion PowerShares QQQ Trust (QQQ), according to data compiled by IndexUniverse.
As of now, the Global X Social Media Index ETF (SOCL) stands as the only ETF to serve up exposure to Facebook, with a 7.3 percent allocation. The ETF currently has $13.9 million in assets. Two UBS ETNs, (EIPO) and its double-exposure cousin (EIPL), hold a 9 percent allocation to Facebook.
No one is commenting on whether Facebook’s entry into the broad technology index is indeed looming, as some index firms call these additions/deletions “material” information, and Nasdaq itself hasn’t been readily available to comment.
But what’s at stake here is that despite investors’ disappointment with the stock, they might soon find it among their holdings. It remains to be seen how that would affect their returns.
Many market participants seem to be quick to suggest that social media may have seen its better days.
That view that was reinforced by a Wall Street Journal article Monday that argued investors are bailing out on another player in the space, Groupon—a sign they are losing faith in companies that were expected to “drive a new Internet boom.”
On Monday, Facebook shares tagged on gains of more than 4.5 percent, putting it at the $20-a-share mark. But the relatively strong performance on a day when the Dow Jones industrial average was trading marginally lower failed to detract from the fact that many think Facebook has fallen from grace. Moreover, it was down 2 percent on Tuesday, as the market moved higher.
When it first went public, its IPO was touted as the biggest in Internet history, with a market capitalization of over $100 billion. Three months into it, the company’s market cap today is pegged at just under $43 billion.
Nasdaq Rule Change To Welcome Facebook
Back in April, Nasdaq changed its “seasoning rules” to its most popular indexes, including the Nasdaq 100, in a move that was said to be targeted at speeding up Facebook’s entry into the “Q’s.”
The new rules, effective April 23, shortened the period of time to three months that companies must be trading on the Nasdaq or the New York Stock Exchange before they are eligible for inclusion in the Nasdaq 100 Index (NDX).
Previously, companies that ranked in the top 25 percent of the index by market capitalization had to wait a year before they were eligible for the index, and all other firms had to wait two years.
That would make Facebook eligible for inclusion as early as September, though its actual addition to the index wouldn’t likely happen until December.
That’s because Nasdaq traditionally rebalances its Nasdaq 100 index in December based upon the price of a security as of the end of October and on the total shares outstanding as of the end of November.
Aside from QQQ, the rebalancing would land Facebook stock into such funds as the $85 million First Trust Nasdaq 100 Equal-Weighted ETF (QQEW) and the $185 million Fidelity Nasdaq Composite Tracking Stock ETF (ONEQ), as well as into a handful of ProShares leveraged and inverse strategies totaling $1.4 billion in combined assets that are linked to the Nasdaq 100.
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