Connecting With Social Media ETFs
NEW YORK (TheStreet) -- With the announcement that Facebook was dropping $1 billion to scoop up the photo-sharing service, Instagram, the social media landscape has again found itself thrust into the spotlight. Unfortunately, neither Facebook nor Instagram are traded publicly, so how are investors supposed to target this burgeoning corner of the technology sector?
The social media industry is still relatively young and, for ETF investors, finding a proper instrument can be a tricky endeavor. While there are a variety of options available, not all are equally appropriate. Therefore, when preparing a game plan, individuals must be prepared to do their homework.
Case in point: at first glance, a fund like the Global X Social Media Index ETF(SOCL) may seem like an obvious choice for those looking to tap into social names like LinkedIn(LNKD) or Yelp(YELP) . Upon proper investigation, however, challenges quickly arise. For one, while names like LinkedIn can be found toward the top of the list, the bulk of the SOCL's index is comprised of companies that many domestic investors have likely never heard of.
Popular U.S.-based companies represent a respectable portion of SOCL's portfolio. However, the fund is ultimately a global play on social media. Asia, in particular, dominates its portfolio. According to the fund's fact sheet, companies based in China and Japan representing a combined 60% of its total assets. Investors unfamiliar with companies like Tencent Holdings, Sina Corp.(SINA) or Yandex(YNDX) will likely have trouble determining the fund's long-term prospects.
SOCL's sweeping geographic reach is not its only challenge, though. In addition, the fund has struggled in the past to generate investor interest. With an average trading volume under 35,000, the fund may be susceptible to liquidity-related issues down the road.