What Snap’s Pop & Drop IPO Means For ETFs

March 09, 2017

Voting Rights Concerns

Adding another roadblock to Snap's journey into ETFs is resistance on the part of some investors to the company's voting structure. None of the Snap shares offered on the market last week have voting rights―an unprecedented situation for an IPO―which leaves firm control of the company in the hands of its two founders.

Balking at what it sees as an unfair situation, the Council of Institutional Investors has urged S&P Dow Jones Indices and MSCI to exclude Snap from their indices, according to a Reuters report. Both index providers are reviewing the situation, but a decision is not expected for at least a few months.

If S&P and MSCI don't include Snap in their indexes, that means the plethora of ETFs that track those indices won't include it either.

Prominent Place In Some ETF

With all that said, regardless of what S&P and MSCI decide, a spot for Snap is all but guaranteed in at least some ETFs. The Vanguard Total Stock Market Index Fund (VTI) is a fund that holds all U.S. small cap, midcap and large-cap stocks. It tracks a CRSP index that reconstitutes quarterly. That means Snap could be a VTI holding by June, according to current index rules for IPOs.

Of course, whether Snap ends up in an investor's broad stock market ETF is relatively inconsequential. Funds such as VTI are highly diversified, and one company—no matter how big or exciting it is—won't noticeable impact returns.

In contrast, for some niche ETFs, Snap has the potential to significantly impact returns. Take the Global X Social Media ETF (SOCL), with $84 million in assets. It tracks up to 50 social media companies from around the world, including Facebook, Tencent, Twitter, Yandex and NetEase.

YTD Return For SOCL

As one of the largest social media companies today, Snap has a prominent place in SOCL's portfolio. As of Wednesday, the company accounted for 4.4% of the fund, making it the 12th-largest holding. 

 

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