Under the Hood of the Social Media ETF (SOCL)
Though the technology sector has always been a hub for innovation and exponential growth, one sub-sector in particular has created plenty of buzz on Wall Street in recent years: social media. From Facebook (FB) to LinkedIn (LNKD) to Twitter (TWTR), investors are seeing more and more of these social media companies become worthwhile investments.
In 2011, one issuer took the brave step to launch a product that taps into the alluring social media landscape. Global X‘s Social Media Index ETF (SOCL) got off to a rough start when it first launched; now, however, the fund has accumulated over $140 million in total assets under management.
In this piece, we’ll take a closer look under the hood of SOCL, examining its unique portfolio.
A Brief Overview: SOCL
- ETFdb Category: Technology Equities
- Sector: Social Media
- Expense Ratio: 0.65%
- Commission Free Trading: E*TRADE, Interactive Brokers
Global X’s Social Media ETF is currently the only fund to offer hyper targeted exposure to social media companies. It tracks the Solactive Social Media Index, which invests in the largest and most liquid companies involved in the social media industry, including companies that provide social networking, file sharing, and other web-based media applications.
Given the industry’s relatively short history, it is not surprising to see that SOCL’s resulting portfolio consists of only about 35 individual holdings. The fund features a nice mix of giant, large, and mid cap companies, as well as meaningful exposure to smaller capitalization firms. Furthermore, SOCL also offers exposure to companies domiciled outside of the U.S..
More than half of SOCL’s portfolio consists of U.S.-based firms. Just under one-third of the underlying companies are domiciled in China, while only four firms are headquartered in Japan. SOCL also features exposure to one German and one Taiwanese firm, as well as two Russian companies [see also the Technology Equities ETF Cheat Sheet].
SOCL’s “Young” Portfolio
Given that social media companies have only just started to trade publicly in recent years, many of the companies in SOCL’s portfolio are relatively young. Below is a table featuring each company’s IPO date:
|SINA CORP US||4/13/2000|
|TENCENT HOLDINGS LTD||6/16/2004|
|PCHOME ONLINE INC||1/24/2005|
|DENA CO LTD||2/17/2005|
|PANDORA MEDIA INC||6/11/2011|
|ANGIE’S LIST INC||11/17/2011|
|NEXON CO. LTD.||12/13/2011|
|JIVE SOFTWARE INC||12/13/2011|
|YY INC ADR||12/21/2012|
|KING DIGITAL ENTERTAINMENT||3/26/2014|
Defining “Social Media”
A closer look at SOCL’s portfolio reveals several companies that may not exactly fit most investors’ idea of a “social media” company. Even a simple google search, however, shows that there are varying definitions of this industry. According to the Merriam-Webster dictionary, social media is:
Forms of electronic communication (as Web sites for social networking and microblogging) through which users create online communities to share information, ideas, personal messages, and other content (as videos).
Of course, not all the companies in SOCL really fit this description (please note that the pie chart depicts the number of companies, not SOCL’s percentage allocation–in terms of total assets–to each sub-industry):
SOCL’s “Pure” Social Media Holdings
There are only 12 companies that strictly fit into the “social media” definition; combined, these companies account for just over 40% of SOCL’s total assets:
- Facebook (FB): This online social media giant allows users to create personal profiles, add friends, exchange messages, as well as post status updates and photos.
- LinkedIn (LNKD): This is a business-oriented social networking service, mainly used for creating and expanding professional relationships.
- SINA Corp (SINA): This Chinese company offers several social media platforms that allow users to access professional media and user generated content, which can be shared with friends.
- Twitter (TWTR): Another social media giant, Twitter is a social networking and microblogging service that allows users to send and read short 140-character text messages (tweets).
- Weibo Corp (WB): This is a social media platform that allows users to create, distribute and discover Chinese-language content.
- Mixi Inc (2121.TYO): This Japanese social networking service allows users to meet new people based on common interests; users can send and receive messages, write diaries, read and comment on other user’s diaries, and join communities.
- YY Inc (YY): This Chinese social media platform engages users in real-time online group activities through voice, text and video. Users can create and organize groups to discover and participate in a wide range of online group activities.
- XING AG (O1BC): This German social software platform is similar to LinkedIn, in that it focuses on business-oriented social networking.
- Renren Inc ADR (RENN): Based in China, this social networking service is essentially the “Chinese copy of Facebook.”
- Jive Software Inc (JIVE): This company focuses on designing social media software for businesses. Its software help employees, partners, and customers work together more efficiently.
- Demand Media (DMD): This company is both a content and social media company. It owns the sites eHow, Society6, creativebug, LIVESTRONG.com, and CRACKED. In addition, the company provides social media platforms to existing large company websites.
- United Online (UNTD): In addition to the company’s social networking services–Classmates and StayFriends–the company also owns internet services NetZero and Juno.
SOCL’s Quasi and Non-Social Holdings
Though the companies listed above can be easily categorized as social media companies, not all of SOCL’s portfolio fits into this definition. NutriSystem, for example, is a weight loss product and service provider – not exactly a social media platform [see also Beer, Chocolate, and Europe ETFs].
Six of the stocks can be categorized as “diversified internet” companies as they offer a wide array of services. Tencent (the fund’s largest allocation) is one of these firms, since its product and service lineup includes instant messaging, online media, wireless internet and internet value-added services, interactive entertainments, games, and online advertising. Other companies that fit into this “diversified category” are (note that some of these companies do offer products that could be labeled as “social media,” but it is not the sole focus of the company):
- Yandex (YNDX): This Russian internet company operates the largest search engine in Russia. It is essentially the Russian version of Google, providing email services, cloud storage, news, video, etc.
- Google (GOOG): In addition to operating one of the largest search enginges in the world, Google also offers online advertising technologies, cloud computing, social networking (Google+), and an office suite.
- DeNa Co.. Ltd (2432.TYO): This Japanese company develops and operates a broad range of mobile and online services including games, e-commerce and entertainment content distribution.
- NeTease.com Inc ADR (NTES): This Chinese company provides online services centered around content, community, communication and commerce, as well as online games, email services, and advertising services.
- Mail.Ru Group-GDR: This Russian internet company develops internet communication and entertainment services, including email services, search engine, instant messaging, blogging, social networks, online games, and e-commerce.
SOCL also invests in five companies that primarily focus on online and mobile gaming: Gree Inc., Changyou.com, Nexon Co, Zynga (ZNGA), and King Digital Entertainment.
Since the fund launched mid-2011, there is limited historical performance data available for SOCL. During its first full year of trading, the fund slipped 0.37% on the year. In 2013, however, the fund surged nearly 64% [see Never Judge an ETF By Its Name].
The Bottom Line
Global X’s Social Media Index ETF (SOCL) is one of the most unique products out there, offering investors access to one of the fastest growing market in the tech space. While the fund may not be a “pure play” on the social media industry, it is a compelling choice for those looking to add exposure to this industry.