By Christian Magoon
CEO, Magoon Capital
Facebook's (FB) IPO on Friday has been one of the most highly anticipated offerings in recent memory. For investors who want to participate in Facebook in a less concentrated way than purchasing the stock, there are two intriguing ETFs that are worth highlighting due to their unique paths to achieving Facebook exposure.
Speed & Concentration
The Global X Social Media Index ETF (SOCL) is an attractive option for investors who desire quick and concentrated access to Facebook. SOCL tracks the Solactive Social Media Index. The index allows for "extraordinary adjustments" when a social media company becomes publicly traded. The schedule for Facebook's addition to the index was announced by Solactive in a press release in early May. Here's an excerpt from the Solactive Index website:
In short, Facebook will join the index, on the close of its fifth day of trading. SOCL will also include Facebook from that day according to Global X. This is an extremely quick index addition and makes it likely that SOCL will be among the first ETFs to hold Facebook stock.
What level of exposure to Facebook will investors in SOCL receive? Based off index guidelines, the largest initial weighting of a pure social media company could be as much as 10%. While that weighting could increase after inclusion, the individual security cap at inclusion and re-balancing of the index is 10%. (The index is rebalanced in April and October.) Based off pricing estimates it appears Facebook's weighting in SOCL would be around 10%. Thus SOCL is likely to be the most concentrated ETF in Facebook. Here's a current list of SOCL's top five holdings via the Golbal X website. Note that two stocks have exceeded the 10% cap since the last index re-balance in April.
Facebook is listing on the NASDAQ and should be eligible for inclusion in the NASDAQ 100 index tracked by the PowerShares QQQ ETF (QQQ) within three months of trading. While it won't be the first ETF to provide Facebook exposure, QQQ presents a unique approach to ETFs like SOCL.
The NASDAQ 100 is a modified market cap weighted index but allows for greater concentration in holdings than the Solactive Index. Thus the 10% cap on Facebook exposure will not apply to QQQ. This could eventually lead to more concentrated exposure to Facebook than SOCL. Here's an example of that concentration in action from the QQQ website. Note Apple's (AAPL) current weighting in the ETF.
Despite the potential for more concentration in Facebook, QQQ should start off with less exposure to Facebook than SOCL. This is because there are many more large cap companies in the NASDAQ 100 index competing for exposure. Thus QQQ is a less concentrated play on Facebook than SOCL initially, but could become the more concentrated play should Facebook succeed in a big way.
In the coming year there will be many ETFs which own shares of Facebook. SOCL and QQQ are just two intriguing examples of ETFs tracking indexes with different approaches to Facebook exposure. SOCL appears to be a great choice for speed and initial concentration in Facebook. In contrast QQQ's index takes a more measured approach to Facebook initially, with the potential for greater concentration if Facebook becomes an even larger success going forward.