In November we covered the release of an exciting new ETF SOCL, which holds stocks of new IPO’s in the social media world including Linkedin, Groupon, Pandora and a host of international companies. Initial reports have waved it off as a gimmick to make money off unsuspecting players. With Facebook it could be a whole new ball game.
With the addition of Facebook stock (FB) when the company goes public, SOCL as per its terms must add the stock to the ETF. Will this be beneficial or hurtful to the holding of SOCL in your portfolio? What are the long term implications of this?
I still hold that SOCL is a great way to get exposure to the whole realm of social media without the fear of investing in any one of these single companies that are hard to stomach on their own. We are all excited about what they offer but scared of how they will make money. Not only do they have trouble making money but some like LinkedIn trade at multiples of their earnings that are more like extortion than investing.
Investors and those holding SOCL in their portfolios should be delighted by the prospect of adding Facebook. This is a company that will offer some stability to the ETF because unlike the vast majority it is highly profitable. Although all of the stocks are growth companies Facebook shows a remarkable talent at making money. There are questions as to the future of that and how investing in Facebook will make money long term.
An important point to consider though is the timing of when SOCL will have to add Facebook to its holdings. It is quite unfortunate because of all the hype the ETF will end up paying through the roof for its holding of Facebook. Facebook is going to be the kind of stock normal investors will have trouble getting their hands on and an even harder time because everyday users will want in, people who may have never invested before in their lives. We are talking hundreds of millions of people.
Global X, managers of the SOCL ETF will have to add the FB stock at the end of the 5th trading day. This affects those who hold it in their portfolios because they will likely pay a high premium for the stock. Yet this is a growth play and if earnings are any indication, Facebook will trade for a lot more in the immediate future.
Facebook’s stock will be a very powerful addition to the SOCL ETF. Global X also states that it will be one of the largest holdings. This is great news for anyone who wants exposure to Facebook without all of the risk. Add the international exposure to the ETF as well as the holding of Google.
This ETF could be a great tool for diversity and growth in one dynamic trade.