Welcome to ETF Of The Week, a designation given to the most newsworthy or notable fund of the past seven days.
Yesterday, Twitter officially joined the S&P 500 Index, replacing Monsanto after the U.S. Justice Department finally approved that company's acquisition by Bayer.
Twitter's inclusion in the famous large-cap index is a little weird, given that S&P usually only adds stocks to the benchmark if it reports four-consecutive quarters of positive profits. Twitter, however, only has two quarters under its belt; before this year, the company had reported 16-straight quarters of losses.
Still, Twitter promises investors it will be profitable for the rest of the year, and since the announcement on Monday, Twitter shares have jumped 6%. They're expected to go even higher, too, since all the S&P 500 ETFs will need to buy the stock to re-jigger their portfolios, as my colleague Cinthia Murphy covered earlier this week in "What Twitter In S&P 500 Means To ETFs."
One ETF that could particularly benefit from a bump in Twitter's price is the Global X Social Media ETF (SOCL), which has the largest allocation to Twitter in U.S.-listed ETFs, at 12.3%.
Source: StockCharts.com. Data as of June 7, 2018.
Twitter, Facebook & Tencent
Launched in 2011, SOCL is well-poised to capitalize on the Twitter news, as it focuses on the largest and most liquid social media companies in the world.
SOCL's portfolio is extremely narrow, with only 32 names. Pure-play social media companies are capped at 10% in the index, while nonpure-play companies are capped at 4.75%. (As Twitter's weighting shows, however, these weightings have drifted a bit, though they'll likely be re-established at the fund's next rebalance in October.)
In addition to Twitter, SOCL also has a substantial stake (11%) in Facebook, which has been in the news of late for various privacy breaches and scandals. All the controversy doesn't seem to be denting Facebook's stock much, however, as it's up 7% year-to-date.
Another big weighting in SOCL is to Tencent (10%), a massive Chinese conglomerate that operates Weibo, China's answer to Twitter; WeChat, a Facebook-like mobile application; and Tencent QQ, an instant messenger.
Global Exposure At A Cost
SOCL's singular focus on social media means the fund ends up excluding three of the four largest U.S. tech companies—Apple, Microsoft and IBM—as well as many of the semiconductor and computer companies that have driven such outperformance in the tech sector.
At the same time, SOCL also puts significant weighting into China and Hong Kong (17% and 10%, respectively). U.S. holdings make up 56%.
With $194 million in assets, SOCL is up 11.4% year-to-date, well outpacing the broader market. But its one-year performance of 28.8% is only about average, compared with technology ETFs as a whole.
SOCL charges an expense ratio of 0.65%, which sounds steep, but actually isn't that far off the average expense ratio of the sector of 0.61%.
That said, the ETF's average daily spread is 0.22%, making it more expensive to enter and exit than most other tech ETFs. Gauge your costs wisely.
Contact Lara Crigger at [email protected]