Global X, the quickly growing ETF issuer best known for its unique sector specific products, announced more plans to expand its ETF lineup. The company released information on a proposed Social Media Index ETF which will track the Solactive Social Media Index. If approved by the SEC, the new fund would be the 36th product for the New York-issuer and would continue the blistering pace of growth that the company has seen so far in 2011. Although a ticker symbol and expense ratio were not released at time of filing, we have highlighted some of the key details from the document below:
The proposed fund’s underlying index is designed to reflect the performance of companies involved in the social media industry, including companies that provide social networking, file sharing, and other web-based media applications. The stocks are screened for liquidity and weighted according to modified free-float market capitalization while the index is maintained by Structured Solutions AG. While more information was not released about the index, some information from the Structured Solutions website did offer some more clues. The page detailed several companies that are in the index including LinkedIn, Renren, as well as lesser known firms such as Meetic and Tencent Holdings. It should also be noted that several of the companies on this list are either based in or trade out of international markets, suggesting that this fund could focus on global social networking firms and not just those that are based in the U.S.
Social Media Sector
Social Media has been gaining great popularity over the last few months as many companies in the space have hit the market with very successful IPOs. Arguably the most famous of this period is LinkedIn (LNKD), the business-focused networking site for professionals. The company was initially priced at about $45/share but surged in the first day of trading to close to the triple digit level. The stock has seen significant volatility since then but is now trading around $100 once again, representing a decent gain for those who got in at the company’s opening price of roughly $85/share. This sharp gain has spurred others in the space, including Pandora (P) and the ‘Chinese Facebook’ Renren. With companies ranging from Twitter, Groupon, and Facebook all in the planning stages of an Initial Public Offering as well, the market for publicly traded social media companies could continue to surge before this year is out.
However, some are also concerned that this is just another wave of the tech bubble from 1999 and that this segment of the market is poised to crash in the very near future. Valuations are getting to be pretty high for most of these companies despite the fact that many are still unprofitable and have little to no prospects of getting out of the red anytime soon. Additionally, investors must consider the immense competition in the space and the relative ease with which many companies can duplicate business models; barriers to entry are particularly slim in this corner of the market [see all the Internet ETFs here].
Although not exactly the same, UBS did recently debut an ETN that tracks a similar index with the launch of its ETRACS Internet IPO ETN (EIPO). This fund tracks the UBS Internet IPO Index which is intended to measure, on a total-return basis, the performance of a subset of Internet-related companies listed on the New York Stock Exchange or The Nasdaq Stock Market, Inc. that satisfy specified market capitalization and other eligibility requirements. The index provides exposure specifically to those Internet-related companies that have been publicly traded for less than three years. Top components include LinkedIn, HomeAway, and Yandex which all make up 10% each of the 20 company benchmark. Additionally, companies such as Rackspace Hostings and OpenTable find their way into the top ten as well, suggesting that while this fund may have many social media companies, it isn’t a pure play on the industry by any means, especially with the Global X Social Media Index ETF on the horizon.
Disclosure: No positions at time of writing.
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