Market Overview

Will The Facebook IPO Validate The Social Media ETF?


It's no secret that news of social media darling Facebook's initial public offering has been good news for the Global X Social Media Index ETF (Nasdaq: SOCL), an ETF that until recently had few supporters.

It can be argued that investors are a fickle bunch or that they're just flat out excited about the Facebook IPO. Either way, the Global X Social Media Index ETF has surged over 7% since news of the Facebook IPO broke in the afternoon last Friday.

In a wide-ranging exclusive interview with Benzinga, Global X CEO Bruno del Ama noted the increase in volume SOCL has experienced since the Facebook IPO news was first reported, highlighting the fact that approximately 16,000 shares in SOCL changed hands on Friday with that figure more than doubling on Monday. The number grew by almost 50% during Tuesday's trading session and as of late Wednesday, SOCL's volume is over 11 times the daily average.

In other words, Facebook is already having an impact SOCL and the company isn't even public yet. That might help alleviate some of the criticism the ETF has been met with since it's November 2011 debut.

"There was a lot of criticism of the ETF when it first came out and that was the first impression some people got," del Ama told Benzinga. "Everyone's entitled to their opinion."

Some of the criticism of SOCL has come from the fact that the ETF is currently allocated quite heavily to foreign companies. Chinese companies account for three of the ETF's top-four holdings and those stocks represented almost 40% of the ETF's weight as of Tuesday. However, that might be part of SOCL's allure as social media is not solely a U.S. phenomenon.

"Social media is a global phenomenon and a lot of the benefit of SOCL comes from providing exposure to hard-to-access foreign companies," del Ama said.

But let's be real. It's not Sina (Nasdaq: SINA), Netease (Nasdaq: NTES) or Yandex (Nasdaq: YNDX), Russia's Google (Nasdaq: GOOG), that are stoking the flames of SOCL's recent rally. Heck, it's not even Google. It's Facebook and that begs the question "How soon after the Facebook IPO will the stock find its way into the passively managed SOCL?"

del Ama cleared up the mystery, telling Benzinga Facebook could become a SOCL constituent as soon as the end of the stock's fifth trading day. He noted that could "take some of the volatility away" and give investors looking for Facebook exposure through SOCL "a more representative price" for the stock.

SOCL tracks the Solactive Social Media Index, which is market cap-weighted. Translation: Expect Facebook to be one of, if not the largest SOCL holding in relatively short order.

"At a $75 billion to $100 billion valuation with a free float of 5% to 10%, Facebook would immediately be among the largest holdings in the ETF," del Ama said.

Assuming the Facebook IPO is as hot as expected, SOCL might be worth looking at right now. Up 7% since Friday, means the ETF has delivered almost nine times the returns offered by the PowerShares QQQ (Nasdaq: QQQ) over the past five days. And maybe the Facebook IPO will be a rising tide to lift the sails of the likes of LinkedIn (NYSE: LNKD), Groupon (Nasdsaq: GRPN) and Zynga (Nasdaq: ZNGA), which combined account for over 10% of SOCL's weight.

It's speculation at this point, but assume for a moment that most investors will not be able to get their hands on part of the Facebook offering before the IPO and/or the stock immediately soars to triple-digit levels. In that case, the next best alternative looks like SOCL which has already proven it will rise on Facebook news alone. That might just bode well for the ETF when Facebook becomes part of its lineup.

Posted-In: Long Ideas News Sector ETFs Short Ideas Specialty ETFs New ETFs Rumors Technicals Best of Benzinga


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