In Defense of the Social Media ETF
At low prices today, social media ETFs are great no-expiration-date call options on the future of social media.
Unwarranted controversy, I might add. The Global X Social Media ETF began trading on Tuesday Nov. 15, 2011. In four days, the ETF has endured a barrage of criticism ranging from the ETF's large weight to Chinese companies to the fact that the fund is just "off to slow start" in the eyes of some.
Regarding the "slow start" thesis, as of Thursday, SOCL had drawn in over $1.4 million in assets under management. That's an average of almost $500,000 per day over three trading days. No, that pace will not continue forever, but let's remember new ETF introductions should not be compared to IPOs for hot stocks. Many new ETFs take a while to mature and gain traction among investors.
At this point, the worst-case scenario for SOCL is that it stands an equal chance of disappearing as it does flourishing. However, four days into the ETF's existence, SOCL becoming the ETF equivalent of Jimmy Hoffa doesn't appear likely.
I also don't agree with dinging SOCL for its almost 37% weight to China. If China wasn't featured in the ETF at all, then naysayers would still be naysayers. Sure, social media started in the U.S. (I think), but it's a global phenomenon.
In an exclusive email exchange with Benzinga, Global X CEO Bruno del Amo had this to say about SOCL's non-U.S. exposure:
"The fact that Sina Corp., for example, has 140 million users and adding 20 million new users a month is perhaps more relevant than whether or not you have ever heard of them. Once larger U.S.-based social media companies IPO, such as Facebook, Twitter and Zynga, they will be added into the index 6 days after they go public, thus increasing the country weighting of the U.S. in the fund."
Not surprisingly, there have been comparisons to social media companies and the dot-com bubble of the late 1990s/early 2000s and this has turned into a critique of SOCL. Some social media companies are not currently profitable. Some are, including Facebook and Zynga.
"The social media companies of today are generating strong revenues from advertising and paying customers. Social media companies that are used by tens and hundreds of millions of people in Asia, such as DeNA and Tencent, are growing at an enormous rate. Currently over 80% of Fortune 100 companies and about 1/3 of small businesses utilize branded social media channels. What better way for advertisers to accurately target possible clients based on very specific profiles including: age, interests, profession, and location?," del Amo told Benzinga.
Let's remember something about Internet companies and profitability. Amazon (AMZN) went public in 1997, but didn't post its first net profit until 2002. The stock is up more than 11,700% since its IPO.
We're not saying SOCL has those type of returns ahead of it, but the new kid on the social media ETF is a far better concept than it's being given credit for. Maybe someday when Facebook and Zynga go public, those stocks will soar to Amazon or Apple (AAPL) price levels, making them unapproachable for most investors. If that happens, SOCL at less than $15 today is a steal and a great no expiration date call option on the future of social media...both in the U.S. and abroad.
Editor's Note: This content was originally published on Benzinga.com by The ETF Professor.
Below, find some more great ETF and market content from Benzinga:
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