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Social Media ETF Still Offers Growth Potential

September 16, 2016 3:05 pm
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While it seems like only yesterday that Facebook Inc (NASDAQ: FB) was going public and the concept of investing in social media stocks via exchange-traded funds was far flung, the reality is the Global X Social Media Index ETF (NASDAQ: SOCL) is fast approaching its fifth anniversary.

That is almost old by the standards of the ETF business, and it shows SOCL, initially viewed as too much of a niche product, has staying power, which says the same of the social media investment theme. SOCL has seen a lot in its almost five years on the market. The ETF was one of the first to hold shares of Facebook at significant, enduring that now story stock's rocky start.

The Enduring Social Media Concept

SOCL, which allocates over 46 percent of its weight to ex-U.S. stocks, has also endured a boom-bust cycle for Chinese social media names. Still, it cannot be said that SOCL's holdings do not offer the potential for exciting growth going forward.

“Already over a decade old, the social media industry has revolutionized how the world communicates, consumes news and media, and shares ideas. Despite signs of a maturing industry – namely slowing user growth and increasing mergers and acquisitions – social media remains one of the highest growth potential areas in the Technology sector given extensive opportunities to monetize users and license data,” according to Global X research.

These days, China's Tencent Holdings Ltd (OTC: TCTZF) and Facebook combine for over 20 percent of SOCL's weight. LinkedIn Corp (NYSE: LNKD) is another 9 percent. Even with the exponential share appreciation delivered by Facebook and LinkedIn over the past several years, SOCL has lagged broader equity benchmarks.

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Since coming to market nearly five years ago, SOCL is 67.3 percent, but the S&P 500 is higher by more than 76 percent over that time, while the Nasdaq Composite has more than doubled. That compares with a double for social media total users over the past six years. The number of social media users around the world is expected to grow another 50 percent over the next five years.

“Marketers are increasingly viewing social media as an important advertising channel given the ability to hyper-target customers, engage in direct conversations with prospects and customers, and reach millennial consumers. Given these tailwinds, we believe the social media industry is expected to continue to be one of the fastest growing segments of the Technology sector,” added Global X.

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