Is the craze for social media evaporating across the globe? At
least, the poor performance by
Global X Social Media Index ETF (
this year is giving such cues. In the year-to-date period, SOCL was
off about 9.50% with the last one month being hardest hit when SOCL
slumped more than 15%.
The reasons for this slide boils down to the social media sell-off
in China as well as acute selling pressure witnessed in some of
SOCL's top holdings, like
Investors should note that SOCL has about half of its focus on the
U.S., 25% of exposure in China and the remaining portfolio in the
rest of the world. This clearly points to why any movement in the
U.S. and China can make or break this social media ETF. Let's delve
into the matter in greater detail below:
What Happened in China?
Internet censorship has always been severe in China, resulting in a
ban on some renowned social networking websites like FB,
, and FourSquare. These sites were identified as risks to
state-controlled media. However, this is an old story.
The latest hazard was a possible bursting of the tech bubble
in the U.S. in March which spilled over into the Asian tech
sell-off as well. The Chinese Internet ETF has seen a spectacular
CSI China Internet ETF
) gaining as much as 21% in the first two months of the year.
Though overall China ETFs started the year with sluggish trading,
two other tech ETFs like
Guggenheim China Technology ETF
Global X China Technology ETF
) returned about 10.0%.
This splendid run-up had to end at some point as the Chinese
Internet market was due for a correction. As a result, the largest
holding of SOCL - Tencent - which accounts for about 13.08% of the
basket, was down more than
since the beginning of February.
Its market capitalization plunged to $126 billion from $152
billion. Another Chinese company
) - occupying 7.41% share of SOCL - tumbled 11.4% in the last one
China Internet ETF: The Best Choice in the
Internet Stocks Losing Charm?
Russian Internet Company Yandex - accounting for 4% of SOCL's share
- lost about 11.2%, and the situation back home was even more
FB - having more than 12% share of SOCL - gave up 13.5% in price,
) having more than 8% share shed 12.8%,
) making up 5.5% of SOCL plummeted 26.6%, Yelp (
) contributor of 5.29% of the fund's total assets plunged 28%, and
TWTR having more than 4.5% focus slipped 19% over the past month.
In short, most components forming SOCL's top-10 holdings
experienced a bloodbath lately (read:
Buy These 2 Tech ETFs on NASDAQ Sell-Off
If this was not enough, recently, the Turkish government imposed a
ban on Twitter. Should this trend continue, we may see more trouble
for social media stocks in the near term, though its long-term
potential looks promising.
This suggests that investors may want to pay close attention to the
sole ETF tracking this space, especially when investors can easily
use this deep plunge as a buying opportunity. Investors should keep
in mind that SOCL delivered an impressive return of 42% over the
past one-year period.
SOCL in Focus
This ETF offers the only pure play in the social media space and
amassed $145 million in its asset base. The ETF charges 0.65% in
fees and expenses. The product tracks the Solactive Social Media
Index, holding 27 securities in the basket. In terms of country
exposure, U.S. firms take more than half the portfolio, closely
followed by China (26%) and Japan (11%).
After incurring a steep loss, the product was down only 0.52% last
week. SOCL currently has a Zacks ETF Rank of 2 or 'Buy' rating with
a 'High' risk outlook (read:
Facebook to Buy WhatsApp, 3 ETFs to Watch
We do not think that the social media space is running out of
favor. In fact, it sees solid potential ahead. But the recent slump
will likely put the planned listing of Alibaba (Chinese Internet
company) on the U.S. exchange in a tough spot (read:
4 ETFs to Tap on Upcoming Alibaba IPO
Also, Weibo -the Chinese version of
seeks to raise $500 million in an initial public offering in the
U.S., according to a recent regulatory filing. With investors in no
mood to binge on social media, these IPOs might fail to succeed
especially when Weibo's parent company SINA is struggling under
If we rule out these near-term hurdles, SOCL might turn around,
with investors' interest on stock markets returning. Markets are
hitting new highs lately. The relative strength index of SOCL is
also hovering round 30, indicating that the fund has slipped to the
oversold territory. The ETF's Parabolic SAR is also higher than its
current price, pointing to an entry point in the ETF for investors
who aren't afraid of taking on a little risk at this time.
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