In 140 characters or less: today is the day of the Twitter IPO. Trading on the New York Stock Exchange under the ticker symbol TWTR, Twitter is one of the most highly anticipated initial public offerings of the year. However, after last year’s Facebook IPO disaster, some investors are understandably leery. The fact that Twitter will trade on the NYSE instead of the Nasdaq has quelled some fears of potential technical glitches [see How To Invest In 2013's Breakthrough Technologies].
Analysts are expecting the social media company to be valued around $18.1 billion, after Twitter priced its IPO at $26. The company originally priced its offering at $17 to $20, but raised its range earlier this week from $23 to $25.
For ETF investors, Twitter will not be featured in any ETFs during its first few trading days, but for those who want to make a play on the social media giant, we highlight which ETFs will likely make big allocations to Twitter – and when investors can expect these ETFs to add TWTR to their portfolios.
Social Media Index ETF (SOCL)
Debuting in November of 2011, Global X’s SOCL was the first ever ETF to target social media companies. Given its targeted focus, it should come as no surprise that Twitter will likely become a component stock. Currently, SOCL’s top holdings include Tencent Holdings Ltd. (00700), SINA Corporation (SINA), LinkedIn (LNKD), Facebook (FB), Pandora (P), Groupon (GRPN), and Google (GOOG).
SOCL’s underlying Solactive Social Media Index will include new IPOs after just five trading days, meaning that Twitter should be included in SOCL within about a week of the IPO [see The Buzz On Wall Street: Social Media On The Rise].
Renaissance IPO ETF (IPO)
This cleverly named fund launched just this past October by newcomer Renaissance Capital. IPO is linked to the Renaissance IPO Index, which is a benchmark designed to hold the largest, most liquid newly listed domestic IPOs.
Like SOCL, the fund is expected to include new companies on the fifth day of trading, meaning it will also be one of the first ETFs to hold Twitter. Once Twitter is included in the fund, it will be removed after it has been publicly traded for two years. Currently, the fund’s portfolio includes Facebook (FB), Michael Kors (KORS), Workday (WDAY), and ZOETIS (ZTS).
US IPO Index Fund (FPX)
This ETF is designed to measure the performance of U.S. companies that have recently gone public – specifically, those that are within their first 1,000 trading days after an IPO. The underlying index consists of the 100 largest stocks that fall into that window, utilizing total market capitalization to make that calculation [see The Biggest Technical Glitches On Wall Street].
With an expected market cap of around $18.1 billion, that would put Twitter above the fund’s median market capitalization of $4.0 billion, but well below the max market cap of $119 billion. New IPOs are added to the underlying index after their seventh trading day, which means that Twitter could be found in FPX as early as November 18.
DJ Internet Index Fund (FDN)
This ETF tracks the Dow Jones Internet Index, which tracks companies that generate at least 50% of their revenues from he internet. Currently, the fund’s top holdings include Google (GOOG), Amazon.com (AMZN), eBay (EBAY), Priceline.com (PCLN), as well as social media companies LinkedIn (LNKD) and Facebook (FB) [see 5 ETF Underdogs Beating The Market].
To be eligible for inclusion, IPOs must have a minimum of three months’ trading history, meaning Twitter would not be eligible until mid-February, 2014. The index composition is reviewed each quarter, with rebalancing taking place after the close of trading on the third Friday of March, June, September, and December. Therefore, expect FDN to add Twitter after the close of trading on March 21, 2014.
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Disclosure: No positions at time of writing.