Updated: Which ETFs Will Own Facebook (And When)

by on May 18, 2012 | ETFs Mentioned:

Today is the day: Facebook finally becomes a public company, trading on the Nasdaq under the ticker symbol FB. The highly anticipated ETF is expected to bring massive trading volumes, and interest should remain elevated for the next several sessions. The IPO also spurs some rebalancings and reconstitutions for ETFs that will include Facebook in their underlying portfolios. But those managers can relax on Friday, as no ETFs will include Facebook during its first few trading days. Below is an updated list of which ETFs might make big allocations to Facebook–and when the addition of the social media giant will occur. There’s a rather wide range; some ETFs will be adding FB stock to their portfolios this month, while others will wait until March [to get more ETF insights, sign up for the free ETFdb newsletter].

Global X Social Media ETF (SOCL)

Facebook’s ETF Entry
ETF Expected Purchase Date*
SOCL 5/25/2012
QQQ 12/24/2012
XLK ???
EIPO 6/6/2012
FPX 5/29/2012
PNQI 3/18/2013
FDN 9/24/2012
*Based on index methodology documents

This hyper-targeted ETF from Global X is designed to offer exposure to the social media industry, so it should come as no surprise that Facebook will be a component stock. SOCL currently consists of both domestic and international social media companies, including LinkedIn (LNKD), Tencent Holdings, Sina Corp, and Google (GOOG).

This fund will be one of the first (most likely the first) U.S.-listed ETF to include FB stock. The underlying Solactive Social Media Index will include new IPOs after just five trading days, meaning that FB should be included in SOCL within about a week of the IPO [see also High Tech ETFdb Portfolio].

PowerShares QQQ (QQQ)

As major exchanges were battling for the rights to be the primary listing destination for Facebook, the Nasdaq announced an interesting change to the methodology used to construct and maintain the popular NASDAQ-100 Index. The so-called “seasoning period” that new listings must endure before being added to the tech-heavy benchmark was recently shortened from one year to three months–meaning that FB shares would be eligible for inclusion into the NASDAQ sometime in August. That could be an interesting stretch for FB stock; with some $50 billion in assets linked to the Nasdaq-100, the addition of the social media company will trigger a wave of repurchases.

According to NASDAQ, the list of annual additions and deletions from the NASDAQ-100 Index is generally announced in early December, with replacements becoming effective after the close of trading on the third Friday in December. So Christmas Eve could be the first trading day for QQQ with Facebook as an official component of its underlying index–timing that could add a little bit of additional stress to the holidays for traders and portfolio managers this year [see also 3 ETFs For A Euro Zone Double-Dip].

Technology SPDR (XLK)

By far the most popular ETF in the Technology Equities ETFdb Category is XLK, which offers exposure to the U.S. technology market. XLK includes all the major technology giants, with big weightings afforded to Apple, IBM, Microsoft, AT&T, and Google [try our Free ETF Stock Exposure Tool]. But it might be awhile before FB finds its way into this fund, as the stock won’t be eligible for inclusion in the underlying index for quite some time (potentially).

In order to make it into the S&P Technology Select Sector Index, a company must be included in the S&P 500. To make that cut, stocks must meet a number of different criteria. One of those is a 50% public float–meaning that at least half of the company’s shares must trade on a public exchange. Facebook won’t come anywhere near that threshold with its IPO, as it is expected that the company will list only a fraction of its shares later this week. In all likelihood, fewer than 10% of all FB shares will be available to the public after the IPO, meaning that the company still has a long ways to go before it becomes a card-carrying member of the S&P 500. In other words, don’t hold your breath to see FB in XLK.

ETRACS Next Generation Internet ETN (EIPO)

As the name suggests, EIPO is another exchange-traded product that will soon include Facebook as a component stock. And based on the rules of the underlying UBS Next Generation Internet Index, FB stock could be included within a few weeks of the IPO. The index is rebalanced on a monthly basis, at which time new securities that meet the inclusion criteria may be added. Specifically, this index is rebalanced at the close of business on the first Tuesday of every month, meaning that the index should include FB stock when the opening bell rings on June 6 [see also 5 Simple ETF Trading Tips].

As an interesting side note, the index to which EIPO is linked is market cap weighted–but calculates market cap including all share classes regardless of who holds them. In other words, FB should get a pretty hefty weighting in this ETN, since there is no adjustment made to account for the fact that most shares will still be held by insiders after the IPO.

First Trust US IPO Index Fund (FPX)

This ETF is designed to measure the performance of companies 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. With an expected market cap of around $100 billion, Facebook could be one of the largest holding in this fund; currently, the largest allocations are to Visa (market cap of about $77 billion) and Philip Morris ($143 billion).

New IPOs are added to the underlying index after their seventh trading day, which means that FB could be found in FPX as early as May 29.

PowerShares NASDAQ Internet Portfolio (PNQI)

This Internet ETF holds a portfolio of the largest and most liquid U.S.-listed companies engaged in internet-related businesses and that are listed on one of the major U.S. stock exchanges. Currently, PNQI has large allocations to Amazon (10%), eBay (9%), and Priceline (8.5%). PNQI is linked to an index that is rebalanced and reconstituted on a quarterly basis, but the annual review process doesn’t happen until March. According to the index methodology, PNQI can be expected to hold FB stock after the close of trading on the third Friday in March (that would be March 18, 2013–a long ways into the future).

First Trust Dow Jones Internet Index Fund (FDN)

This ETF is linked to the Dow Jones Internet Composite Index, a benchmark that includes companies that generate at least half of their revenues from the Internet. Current top components include Google, Amazon, eBay, and Priceline.com. In order to be eligible, stocks must have at least three months of trading history, meaning Facebook could be included in August of this year. 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.

So expect FDN to add FB after the close of trading on September 21, and open on September 24 with FB as a significant component.

Disclosure: No positions at time of writing.