The big news out of the social media sector is that Twitter is
taking steps to become a public company.
Goldman Sachs (NYSE:
) will be the lead underwriter for the initial public offering
and while that much is known, it has also been reported that
Twitter still has not decided on an exchange on which to list its
shares. That implies the IPO could still be months away.
For ETF investors, there is some excitement surrounding the
possibility of the Twitter IPO. The Global X Social Media Index
) is out in front of that story as the issuer was the first to
confirm it will add Twitter when it goes public.
Global X Social Media ETF Will Add Twitter After
Another ETF that is an obvious destination, at least at some
point, for shares of Twitter is the First Trust US IPO Index Fund
). Using the example of the Facebook (NASDAQ:
), SOCL was the first ETF to hold the stock, but for a while
FPX was the ETF with the largest weight
to shares of the social media darling.
FPX, which as was
predicted in early January
, has been a stellar performer this year and is up 28.3 percent.
Said another way, the ETF may not need Twitter, but since FPX is
"the IPO ETF," there will be speculation regarding when Twitter
will find its way into the ETF's lineup.
Investors should not be holding their breath for Twitter
popping up in FPX to happen right out of the gate. FPX is indeed
an IPO, but often forgotten is the
underlying index's methodology
FPX does not need to race to include Twitter in its lineup
because it can hold new stocks for up to 1,000 days after they
come public. "The U.S. IPOX-100 Index has historically captured
around 85% of total market capitalization created through U.S.
IPO activity during the past four years,"
according to First Trust
Importantly, FPX is not an ETF where the price action is
determined by activity in the IPO market. That has been said
before and it is inaccurate. FPX gained almost 29 percent in
2012, which was arguably just a mediocre year in terms of IPOs
coming to market. FPX is an equity-based ETF and its underlying
components determine the fund's fortunes, not large or small
amounts of IPOs.
Another interesting point about FPX is just how new many of
its holdings. Since the fund can hold stocks for up to 1,000
after an IPO, some of the newness will obviously wear-off. It
should also be noted, that five of the ETF's top-10 holdings are
either new versions of old companies, General Motors (NYSE:
) for example, or spin-offs like Phillips 66 (NYSE:
) and Marathon Petroleum (NYSE:
From there, FPX's 51 holds are littered with spin-offs are
companies that were once public then taken private in private
equity deals only to go public again. There is nothing wrong with
this methodology, but it also says FPX is not a sure bet to
include Twitter just weeks after the IPO. FPX's returns say it
does not need to.
For more on ETFs, click
Disclosure: Author does not own any of the securities
(c) 2013 Benzinga.com. Benzinga does not provide investment
advice. All rights reserved.
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