ETF Stocks: Social media ETF hurt by media limelight

The Global X Social Media ETF provides a low-cost way of investing in ‘social media’ stocks. But many of those companies are in the broker/media limelight, meaning now may not be a good time to buy.

GLOBAL X SOCIAL MEDIA ETF (symbol SOCL on Nasdaq: www.globalxfunds.com) invests in companies that provide social networking, file sharing and other web-based media applications.

This exchange traded fund holds 36 social media stocks. U.S. social media stocks make up 49% of assets. China is next with 28%; Japan, 12%; Russia, 7%; Ireland, 2%; Taiwan, 2%; and Germany, 1%.

The fund’s MER is 0.65%. It began trading as a new issue on November 14, 2011.

The top 10 holdings of the Global X Social Media ETF are Facebook, Tencent Holdings, LinkedIn, Youkou.com, Alphabet, NetEase, Nexon, Yandex NV, Yahoo! and Mail.Ru Group.

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This particular ETF gives you an easy and low-cost way of investing in stocks with a social media theme. Many of these stocks are now in the broker/media limelight, meaning now is not a particularly good time to buy. Generally, by the time the media has identified an investment theme like social media—and the investment industry has begun offering ETFs and other shortcuts to investing in it—the best opportunities have likely passed.

ETFs: Cheaper alternative to social media ETF

Stocks that are in the broker/media limelight tend to expose you to extra risk. That’s because the favourable attention they get in the limelight pushes up investor expectations. When these stocks fail to live up to those heightened expectations, and that always happens eventually, stock prices can plunge.

A number of the fund’s stocks are highly speculative. They could move higher in response to market sentiment, news releases and so on. But many of these shares are overvalued at today’s prices. They need great success to justify current stock prices, let alone move higher.

When the social media stock boom cools off, as it inevitably will, some of these stocks will drop to much lower levels.

We like some of the stocks the Global X Social Media ETF holds. The best example is Alphabet Inc., symbol GOOG (class C non-voting) and GOOGL (class A voting) on Nasdaq, which is a buy recommendation in our Wall Street Stock Forecaster newsletter. (In fact, we singled out Alphabet Corp. last month as our #1 Inner Circle buy for 2016.)

We now see Facebook and LinkedIn as holds for aggressive investors. We think a holding made up of equal parts of Alphabet, Facebook and LinkedIn may well outperform Global X, and you wouldn’t need to pay the 0.65% MER.

TSI Network recommendation: SELL

For our view on an ETF that seeks to mimic the holdings of wealthy investors like Warren Buffett, read Direxion iBillionaire ETF copies billionaire investors.

For our report on selecting the most promising index funds in Canada, read How to pick the best Canadian index funds.

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Scott Clayton

Scott is an associate editor at TSI Network. He is the lead reporter and analyst for Dividend Advisor, Power Growth Investor and Canadian Wealth Advisor and a member of the Investment Planning Committee. Scott began his investment and financial career working with Pat McKeough at The Investment Reporter in the 1980s. Subsequently, he worked at the Financial Post Corporation Service for 10 years. He joined TSI Network in 1998. He is a Bachelor of Economics graduate of York University, and he also has an M.B.A. from the Schulich School of Business.

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