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Friending the Social Media ETF, Not Facebook


Before the actual initial public offering, it was one of the most anticipated and ballyhooed IPOs in recent memory. Following its debut as a public company, social media giant Facebook (FB) quickly became known as the company behind one of the most controversial and disappointing IPOs of all-time.

Just over a year removed from that IPO, investors still are not “friending” shares of Facebook. The stock is down 12.3% year-to-date despite a fine performance for the Nasdaq Composite. Or look at Facebook’s ongoing disappointment this way: The stock is down in 2013 while the PowerShares QQQ (NasdaqGM: QQQ) is up 10%.

Despite Facebook’s woes, an ETF that was linked at the stock’s hip even before the IPO is proving to be a winner. Facebook is the fourth-largest holding in the Global X Social Media Index ETF (SOCL) with a weight of 8.1%. That is not holding SOCL back as the ETF has posted a year-to-date gain of nearly 13%. [Social Media ETF Shakes Off Facebook Lockup Woes]

“Defections by teens to to other sites such as Tumblr, Snapchat, Instagram and Whatsapp have been notable as Facebook has been labeled,” reports Diane Alter for Money Morning. Bad news for Facebook, but that those defections have not been a problem for SOCL.

SOCL, which debuted six months before the Facebook IPO, was the first ETF to hold the stock. That prompted some investors to think so goes Facebook, so goes the Facebook ETF. These days, that is not the case as SOCL is deriving strength from other sources. When the ETF first debuted, one of its selling points was that it offered international exposure to the social media sub-sector.

SOCL is benefiting from soaring Chinese Internet stocks, such as Tencent Holdings and Sina (SINA). Those two stocks combine for 22% of the ETF’s weight. LinkedIn (LNKD) is SOCL’s third-largest holding and that has been a difference maker for the ETF as that stock is up 50% year-to-date.

However, even as LinkedIn has lost almost 12% in the past month, SOCL has gotten support from other holdings, though Facebook is not on that list. Pandora (NYSE: P) and Groupon (GRPN) are each up at least 22%. That pair combines for almost 11% of the ETF’s weight.

There are risks. SOCL is showing signs of vulnerability to the recent retrenchment in shares of Facebook and LinkedIn. That is to be expected when those two stocks represent almost 17% of the ETF’s weight. Additionally, SOCL has a beta of 2.1 against the S&P 500, according to Global X data. That is a good thing if risk is in style, but not so much in a risk-off environment.

Global X Social Media Index ETF 

ETF Trends editorial team contributed to this report.

Tom Lydon’s clients own FB and QQQ.

The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.