The End of the Social Media ETF Nightmare? - ETF News And Commentary
August 13 2012 - 7:05AM
Zacks
Apparently, the minute before the Facebook (FB)
IPO was the high water mark for the broad social media industry, at
least so far in 2012. After that horrendous opening session for the
social media giant, the bottom appeared to fall out of the space,
not just in the networking segment, but in various other social
media companies as well.
Firms like Zynga (ZNGA) and Groupon
(GRPN) have also succumbed to the panic and are now
trading at or near 52 week lows, suggesting a broad level of
disinterest in this once investor darling corner of the market.
Now, many other IPOs in the segment are also being put on the
backburner, as more companies wait for a more friendly time to
debut their shares out to the general public (see Three ETFs to
Play the Tech IPO Boom)
This negative trend has been especially devastating to one of
the only funds to target the space, the Global X Social
Media Index ETF (SOCL). The fund debuted in November of
2011 and appeared to be perfectly timed to take advantage of the
social media boom and the increased investor interest in the
space.
Initially, this was certainly the case as the ETF was one of the
most discussed products and was well on its way to a solid asset
base. Yet despite doing a great job of investing in a variety of
social media firms from around the globe, and being one of the few
funds to have a decent holding in FB, the product still has less
than $20 million in AUM as of right now as interest in the space
has evaporated seemingly overnight.
While investor curiosity over social media stocks has certainly
waned after the lackluster Facebook IPO, the real reason for
investor hate undoubtedly is due to the weak performance. In the
past three month period, SOCL has lost about 8.6% including a
roughly 10.6% slump in July alone. With such a rough track record
for the broad space it isn’t that surprising to see that many
investors have abandoned the segment for the time being (see Social
Media ETFs: Time To Buy?).
However, the past few sessions have witnessed something of a
reversal in the space, with many stocks and SOCL coming off of
their lows. In fact, SOCL has added close to 5.3% in the first
third of August, helping to cut deeply into the fund’s longer term
losses.
Investors should also note that thanks to the recent
performances of many stocks in the sector, the cream of the crop
now accounts for some of the biggest holding percentages in the
fund, while a number of other large caps also occupy some of the
top spots, suggesting less volatility could be in the cards for
SOCL in the near future (read Three Great Tech ETFs That Avoid
Apple).
For example, LinkedIn (LNKD) currently accounts
for just over 12.2% of the fund, making in the top component in
SOCL. While much of this gain has been thanks to a recent earnings
report, the company is still up over 64% year-to-date, implying a
relatively long time frame of outperformance.
Beyond this leader, SOCL also includes a nearly 5.7% allocation
to GOOG, while it has just under 4% combined in the increasingly
weak duo of Zynga and Groupon. While a large reason for their small
holding percentages is clearly due to their terrible performances,
this small weight could be great news for those who are thinking
about getting in now and want low levels of exposure to these
uncertain companies.
So while social media has been an extremely weak sector as of
late, some metrics may be starting to come down to more reasonable
levels, especially since some companies have now proven to be
winners in the market (see more in the Zacks ETF
Center).
Furthermore, given the recent bout of strength in SOCL, which
decisively moved the fund off of its all-time lows, we may have
witnessed a near-term bottom for the fund, making now an
interesting entry point for investors with a long time horizon, a
desire for broad social exposure, and the willingness to take on
significant risk.
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FACEBOOK INC-A (FB): Free Stock Analysis Report
GROUPON INC (GRPN): Free Stock Analysis Report
GLBL-X SOCL MDA (SOCL): ETF Research Reports
GLBL-X SOCL MDA (SOCL): ETF Research Reports
ZYNGA INC (ZNGA): Free Stock Analysis Report
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