Facebook IPO: Something Special For Social Media ETF?
It's stating the obvious, but Facebook's (Nasdaq: FB) IPO is bound to have an impact on multiple fronts. Not only will it make founder Mark Zuckerberg and some of his employees very, very wealthy, the company could be sporting a market cap that is higher than about half of the companies in the Dow Jones Industrial Average when the shares commence trading on Friday.
As Benzinga previously reported SOCL and the idea of the Facebook IPO have been joined at the hip since the social media first announced plans to become a public company. Whether or not the Facebook IPO provides some sort of validation for SOCL or whether or not the ETF even needs it is up for debate.
The key for SOCL going forward will be whether or not the fund proves to be a credible avenue for accessing Facebook shares without owning the stock directly and whether the ETF accomplishes its goal of delivering exposure to the fast-growing social media industry. In a wide-ranging interview with Benzinga, Global X CEO Bruno del Ama taled about the Facebook IPO and how it could impact SOCL.
"Nobody doubts Facebook is a special company," del Ama said in the interview. "It's a great company, but the question is is it a good investment? We view social media as a business with a significant moat and barriers to entry."
It is clear Facebook's IPO plans have boosted SOCL's superficial statistics. The fund, which debuted in November 2011, is now home to almost $16 million in assets under management and sees average daily volume of over 36,000 shares. Both numbers are exponentially higher than were they were as recently as February. del Ama acknowledged SOCL has seen consistent growth in AUM and volume leading up to the Facebook IPO.
When SOCL first debuted, it was criticized by some for its niche focus on a new, arguably complex industry and the had few vocal supporters immediately following its introduction. Those days appear to have passed as some financial advisors have started embracing SOCL as a way of tapping into the burgeoning social media industry, according to del Ama.
"Advisors have clients that are on Facebook. Their kids and their grandchildren are on Facebook and they're seeing SOCL as a great vehicle for getting into the stock while avoiding the volatility of the first few trading days," del Ama said.
No one knows for sure just how wild or boring Facebook shares will be over the first days of trading, but the stock will be added to the Solactive Social Media Index, the index tracked by SOCL, on May 24 and the ETF will reflect that addition on May 25.
del Ama said waiting five days to add Facebook to SOCL allows for better price discovery and achieving a share price that's more reflective of Facebook's long-term prospects. Based on the current expected size of the Facebook IPO, del Ama said the stock will probably come in at 10% of the index's weight. Currently, LinkedIn (NYSE: LNKD) is SOCL's largest holding with an allocation of almost 12%. China's Tencent Holdings receives a weight of almost 10.2%. SOCL's index rebalances on a semi-annual basis. Bottom line: Facebook will be a force in SOCL and a primary driver of the ETF's returns going forward.
Acknowledging that Global X was early to the social media ETF game (the fund is still the only pure play ETF on the industry), del Ama sees advantages in that early arrival.
"We think we're early on the social media stage, but as these companies scale down expenses, we think we're going to have cash cow businesses that are basically monopolies," he said. "We offered SOCL to provide access to a segment of the capital markets that we think will do well over the long-term. Social media is one of those segments."
While shares of SOCL have fallen 7.4% in the past month, volume has remained high and is more than triple the daily average today. To say SOCL's performance over the next week will be interesting to watch is an understatement, but the fund has honored support at $14, indicating it could be worth a nibble on the back of the Facebook IPO.
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