Global X goes where no ETF provider has gone before, with launch of a social media ETF.
Global X, the New York-based fund provider focused largely on commodity and emerging markets, rolled out today the market’s first ETF to focus solely on social media companies, recalling First Trust’s niche Internet-linked funds.
The Global X Social Media Index ETF (NasdaqGM: SOCL) is the first portfolio allocated entirely to social media names, tracking the 25-security free-float, market-capitalization-weighted Solactive Social Media Index. It comprises companies involved with social networking, file sharing and other Web-based applications. SOCL comes with a net expense ratio of 0.65 percent.
SOCL will join other niche Internet-linked funds such as First Trust’s widely successful $557 million First Trust Dow Jones Internet Fund (NYSEArca: FDN), as well as a smartphone ETF (NasdaqGM: FONE) and a cloud computing ETF (NasdaqGM: SKYY), which has gathered $65 million in four months.
But SOCL hones in on the booming global social media industry. In the U.S. alone, some estimates suggest demand for social networking among Internet-using adults has nearly doubled in the last three years, Global X said in a press release, citing a Pew Research Center survey.
Individuals as well as companies are jumping on the social media bandwagon, with roughly 84 percent of Fortune 100 companies relying on “branded social media channels,” the company added, citing data from a 2011 Burson-Marsteller study.
“SOCL can provide an efficient way to tap into this global, dynamic sector,” Global X Funds’ CEO Bruno del Ama said in a press release. “This is a global phenomenon that as an investor, you might want to participate in.”
The Inner Workings
“As the industry continues to expand through IPOs, the index will capture these new companies shortly after their public debut, providing a relatively cost effective way to gain exposure to the social media industry,” del Ama said.
That said, new pure-play companies that go public will be added to the mix only six days after their IPOs, in an effort to keep the portfolio relevant and updated in the face of an industry that is quickly changing, del Ama said.
In fact, of the 25 initial securities, seven of them have only become public very recently, he noted.
What’s more, the index methodology limits the weighting of companies that, while significant in the social media space, aren’t fully focused on the industry.
Names like Google, for instance, can snatch no more than 4.75 percent of the overall basket because social media represents only a small part of the company’s total revenues, del Ama said.
SOCL comes to market with Tencent Holdings, Sina Corp, DeNA Co. and NetEase.com topping its list of holdings. The four companies each represent 10 percent of the basket, according to Global X Funds.
The Importance of China
The global-in-scope portfolio allocates nearly 37 percent of its country exposure to China, a sizable allocation that reflects the importance of China's enormous consumer base on the social media industry.
But tapping into China’s notoriously regulated and censored social media space is best accomplished through local companies rather than through names like Facebook, which have more limited access to that market, del Ama noted.
“These home-grown companies know how to navigate the regulatory framework, how to deal with the restrictions” he said. “To capture the Chinese market, you have to have these companies in the portfolio.”
Meanwhile, the U.S. represents 26 percent of the mix and Japanese companies making up nearly 20 percent, the company said.
SOCL is priced in line with Wheaton, Ill.-based First Trust’s ETFs: SKYY and FDN each cost 0.60 percent, while FONE is the priciest of them all, at 0.70 percent.
Global X has other niche funds, such as a farming ETF, a fishing fund and a waste management ETF, to name a few.
The company had $1.3 billion of assets across its various ETFs as of Nov. 11, making it the 20th-largest ETF provider in the U.S., according to data compiled by IndexUniverse.