Is the Social Media ETF Losing Its Luster?

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After enjoying a surge this year, the social media stocks seem to have hit the brakes. These stocks have fallen out of favor with investors in recent weeks, mainly because many companies in the space failed to impress with their Q3 numbers or gave a lackluster guidance. Plus recent gains in these stocks reflect lofty valuations and raised concerns about a potential bubble in the space This happened markedly when Twitter (TWTR) made its debut as a public company on November 7.

After making a sizzling IPO launch and hitting $50 in its first day of trading, Twitter has started to stabilize around $41. It is still up around 58% from the IPO price of $26 (read: Is Twitter Owned by Your ETF?).

The listing of Twitter appears to have taken some shine out of the other social media stocks. The shares of high-profile social media stocks such as Facebook (FB), Yelp (YELP), LinkedIn (LNKD) and Groupon (GRPN) plunged 11.67%, 8.94%, 7.38% and 6.22%, respectively, over the trailing one month. This indicates a broad sell-off in this corner of the market which had recently become the darling of investors.

Given the disappointing performance of the stocks and another bubble talk, the only pure play ETF tracking the performance of social media companies – Global X Social Media Index ETF (SOCL– lost nearly 3.62% over the trailing one-month period. This is in contrast with the gains of 2.33% for the broad technology fund (XLK) and 2.69% for broad U.S. market fund (SPY).

However, the fund is still up over 48% year-to-date (read: 3 Sector ETFs Crushing the Market in 2013).

Social Media ETF in Focus

The ETF tracks the Solactive Social Media Index, which measures the performance of companies involved in the social media industry, including companies that provide social networking, file sharing and other Web-based media applications.

In total, the product holds 28 securities in the basket and puts more than 70% of assets in the top 10 firms. This suggests heavy concentration and dominance of the top 10 holdings. The top three holdings – Tencent Holdings, LNKD and Sina Corp – together make up for about 30.5% of the total assets (see: all the Technology ETFs here).

The fund is evenly split between mid and large caps while small caps account for 13% share. Further, the ETF is tilted toward growth securities as these make up for 63% share. In terms of country exposure, U.S. firms take more than half of the portfolio, closely followed by China (26%) and Japan (7%).

The product has gathered over $92 million of capital this year, propelling its total asset base to $105 million. Volume is good as it exchanges more than 125,000 shares in hand on average daily basis. The ETF charges 65 bps in fees and expenses.

Bottom Line

The recent slide in the social media stocks and the ETF seems to be short-lived as Internet usage in the U.S. and abroad is increasing and a large share of that time is spent on social media sites. This suggests good trading ahead for the product in the coming months.

Further, SOCL has a Zacks ETF Rank of 2 or ‘Buy’ rating with ‘High’ risk outlook. Moreover, at the time of writing, all the four Zacks industries that are under the social media industry have Zacks Ranks in the top 45%, suggesting more upside potential heading toward the New Year (read: 3 Biggest ETF Winners from the 3rd Quarter).

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FACEBOOK INC-A (FB): Free Stock Analysis Report

GROUPON INC (GRPN): Free Stock Analysis Report

LINKEDIN CORP-A (LNKD): Free Stock Analysis Report

GLBL-X SOCL MDA (SOCL): ETF Research Reports

TWITTER INC (TWTR): Free Stock Analysis Report

YELP INC (YELP): Free Stock Analysis Report

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