The Twitter Effect On ETFs (TWTR, SOCL, IPO, FPX, FB)
Social media giant Twitter (NYSE: TWTR) reported earnings after the bell last night and the street does not like what they heard.
The two main metrics the company is measured by, monthly average users and engagement, both came in below expectations and future growth is being questioned.
There are several ETFs that call Twitter a top ten holding and with the negative news Wednesday and a major sell-off in the stock price today, the ETF world is taking notice.
Global X Social Media ETF (NYSE: SOCL)
The niche technology ETF is actually up in midday trading even though its number five holding that makes up 6.3 percent of the portfolio is down 20 percent. The sixth largest holding in the ETF, Pandora (NYSE: P), is also down on earnings as it drops to the tune of 11 percent.
See also: Twitter Ends 2013 With A Surprise Profit
Helping keep SOCL from falling into negative territory is a 21 percent gain in Yelp (NYSE: YELP), which makes up 5.2 percent of SOCL and is the eighth largest holding in the ETF. This is the beauty of investing in an ETF, the company-specific risk is almost completely removed and there is still upside potential due to a mix of various stocks.
Renaissance IPO ETF (NYSE: IPO)
Twitter is also the number five holding in this ETF, but only makes up 3.6 percent of the portfolio. The largest holding is Facebook (NASDAQ: FB) with an allocation of 11.1 percent. Both Pandora and YELP are absent from the portfolio. The ETF is trading with a small gain today as the exposure to Twitter is minimal and the overall market is trading higher with a sizable gain today.
First Trust U.S. IPO Index ETF (NYSE: FPX)
Most investors assume Twitter is a top holding in the IPO-focused ETF, but it is not in the top ten and as a matter of fact, the stock is nowhere to be found in the ETF. FPX takes an approach that does not involved buying into a new IPO as soon as it goes public. This approach helped with Facebook, as it added the stock after it was publicly traded for a few months and entered at a lower price. Facebook is now the largest holding in the ETF, making up 11.4 percent. On the day, FPX is up 0.7 percent.
Due to Twitter only being a publicly traded company for three months there are only a handful of ETFs that have exposure to the stock. This is a good thing today with the shares down to the lowest level since December. For investors that would like to gain some exposure to Twitter on the sell-off, the best way to play it via ETFs is SOCL due to the 6.3 percent allocation. And as it is proven today, ETFs will ultimately remove the big risks of owning an individual stock.
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