As the economy starts to improve, the IPO market has become
increasingly popular among a variety of investors. Many of these
newly public companies are either in the tech or social media
space, giving investors access to firms that are in one of the few
high growth areas in the developed world.
In fact, over the last twelve months, a variety of names have
debuted in this sector ranging from Zynga
(ZNGA) and
Groupon (GRPN)
to LinkedIn
(LNKD) and Yelp
(YELP), allowing
investors to broaden their exposure to these risky but potentially
lucrative market segments.
Beyond these names, investors are also looking forward to the
long-awaited IPO from Facebook while other smaller companies seem
poised to ride this wave of optimism to the stock market as well
(read ETF Investors: Beware The Coming ETN Backlash).
However, the results of these internet 2.0 firms have been mixed
at best so far in their short histories as some have managed to
post solid gains while others have failed to maintain their IPO
price. For example, ZNGA is up more than 35% since its debut while
GRPN has lost about 37% in comparison, suggesting that it has been
hit or miss so far in the segment (see Three Technology ETFs
Outperforming XLK).
Given this extreme volatility, some investors may be worried
about taking the plunge on any of these individual securities. As a
result, a basket approach may be the way to go instead, allowing
investors to play the sector more broadly, hoping that the winners
outweigh the losers and that the space continues to grow overall.
For investors seeking this technique, we have highlighted three
diversified ETFs below which could offer excellent exposure to the
space:
ETRACS Next Generation Internet ETN
(EIPO)
This note looks to give investors exposure to a basket of ‘next
generation’ internet firms generally consisting of firms in the
social networking, internet software, and internet service stocks.
The portfolio consists of 20 stocks in total and the benchmark
imposes a three year age limit on holdings, ensuring that
constituent securities remain extremely relevant and at the
forefront of the industry.
In terms of holdings, the portfolio is heavily skewed towards
small securities; large caps make up just 11% of the total
portfolio. Meanwhile, from a country perspective, the U.S. accounts
for close to two-thirds of assets while China (15%), Netherlands
(10%), the UK (8%), and Australia (3%) round out the rest (see Why
SSDD Is The Top Tech ETF).
For individual securities, the top spots are dominated by
developed market companies from the U.S. and Europe. Three
companies—Yandex, LinkedIn, and Groupon—are the only ones to make
up at least 10% of the portfolio, ensuring relatively high levels
of concentration. In fact, the top ten holdings account for nearly
three-fourths of the total portfolio.
Investors should also note that there is a leveraged version of
this product, the ETRACS Monthly 2x Leveraged Next
Generation Internet ETN
(EIPL). This note resets
exposure on a monthly basis and charges investors a similar expense
ratio of 65 basis points. Volume is also light in this product, but
the leveraged exposure could offer investors higher returns—or
losses—depending on how the market plays out (read Understanding
Leveraged ETFs).
Global X Social Media Index ETF
(SOCL)
For a targeted play on the social media industry, investors
should take a closer look at Global X’s SOCL. The ETF tracks the
Solactive Social Media Index which seeks to track the performance
of companies involved in the social media industry including;
social networking, file sharing, and other web-based media
applications.
The ETF charges investors 65 basis points a year in fees and
holds 30 stocks in its basket. AUM is pretty light at just about
$11.4 million but the fund does trade decent volume, coming at just
under 25,000 shares in an average session. This suggests relatively
small bid ask spreads although SOCL’s spreads will still be higher
than what many other investors are used to in more popular products
(also see Inside The Cloud Computing ETF).
In terms of holdings, the product has a tilt towards large cap
stocks as these securities make up slightly more than half of the
portfolio. Next up is mid caps which make up another 36%,
suggesting that the fund is definitely focused on larger securities
than some of its counterparts.
For individual stocks, the portfolio is quite spread out from a
geographic perspective, and to a lesser extent, across companies as
well. LinkedIn takes the top spot at 11.8% of assets while Tencent
Holdings from China is in second at 10.8% while Dena Co from Japan
rounds out the top three at 9.4% of assets.
First Trust IPOX-100 ETF
(FPX)
For a broad play on the IPO market—irrespective of
industry—First Trust’s FPX is a solid pick. The ETF tracks the U.S.
IPOX-100 Index which is a benchmark that looks to capture at least
85% of the total market capitalization created through U.S. IPO
activity over the past four years.
The fund charges investors 60 basis points a year in fees for
its services, holding roughly 100 stocks in its basket. Volume and
AUM is pretty light, coming in at, respectively, 4,000 shares a day
and $17 million, but it remains one of the only ways to play the
broad IPO market in ETF form (see Ten Best New ETFs Of 2011).
As stated earlier, the fund looks at the broad IPO market and
thus includes companies from a number of industries. Tech does
account for the top sector at about 25% of assets, while consumer
stocks take the next two sector spots at 23% for cyclicals and 18%
for staples.
Thanks to this breakdown, the fund is dominated by large caps
such as V, PM, and
GM, which comprise nearly 27% of the total assets.
A few smaller tech/internet companies do make their way into the
fund, but their allocation is relatively minor in comparison to
some of the other market segments. As a result, this fund is
probably not appropriate for investors seeking targeted internet
IPO exposure but instead is likely a better choice for investors
who want broad access to the surging IPO market.
Want the latest recommendations from Zacks Investment Research?
Today, you can download 7 Best Stocks for the Next 30
Days. Click to get this free report >>
GROUPON INC (GRPN): Free Stock Analysis Report
ZYNGA INC (ZNGA): Free Stock Analysis Report
To read this article on Zacks.com click here.
Zacks Investment Research
Want the latest recommendations from Zacks Investment Research?
Today, you can download 7 Best Stocks for the Next 30 Days. Click
to get this free report
Global X Funds Global X ... (NASDAQ:SOCL)
Historical Stock Chart
From Jul 2024 to Aug 2024
Global X Funds Global X ... (NASDAQ:SOCL)
Historical Stock Chart
From Aug 2023 to Aug 2024