One of my main investment philosophies is to hunt for game changers: companies that rewrite the rules and revolutionize how we live. While social media may feel normal to most of us now, it's a relatively new concept, built on relatively new technologies and business models.
S ocial media is fundamentally changing everything from how we interact with other humans to how we get our news to how companies buy and sell ads. Wall Street simply can't ignore.
Now, the challenge with investing in gamechanger companies, of course, is risk. With novelty comes uncertainty. That's been evident in the social media space especially, with hype sometimes inflating valuations as social media companies head to Wall Street … and investors then paying the price. Twitter Inc (NYSE: TWTR ) is perhaps the most high-profile flop.
One way to reap the rewards without risking the farm, though, is to instead invest in an exchange-traded fund. Such funds let you hone in on a specific sector or region while spreading the risk across countless individual stocks.
The Global X Funds Social Media Index ETF (NASDAQ: SOCL ) offers exposure to not just obvious plays like Facebook Inc (NASDAQ: FB ) and Twitter, but also lesser-known social media investments like China's Tencent Holdings (OTCMKTS: TCEHY ) and Russia's Yandex NV (NASDAQ: YNDX ) - both top five holdings.
Since its inception in 2011, the fund has offered investors quite a rollercoaster ride. But over the 12 months specifically, it's booked more than 50% gains even in the face of a significant cool off in the final months of 2016. Currently, shares of SOCL are reapproaching the all-time high they made last fall and are sitting nicely about their short-term and long-term moving averages.
Does this run foreshadow yet another drop - and perhaps an even larger one - for the volatile fund? My answer is no. The momentum SOCL has shown of late is in a league separate from the ups and down it posted from 2013 to the beginning of 2016. That's because the funds holdings have shifted around and the social media space has become more established.
As already mentioned, that doesn't mean it's all smooth sailing. As Twitter continues to struggle and Snapchat's IPO adds question marks to the space, there will be plenty of bearish fodder around SOCL.
But I maintain that any investor who totally avoids social media because of some uncertainty and variance will also totally avoid some indisputable game changers and indisputable upside. This exchange-traded fund may be on the riskier side compared to other sectors, but it's still a far smarter bet on social media than attempting to cherry-pick the next big winner.
There are lots of question marks around the technology and profitability of various social media companies-especially considering many products are part of a larger conglomerate.
Thus, such a fund gives you exposure to the mega-trend as opposed to asking you to figure out a space the main players in it don't even fully understand. It's not hard to see the impact social media has and will continue to have on society and business, but it is hard to pick out the perfect investment under that umbrella.
SOCL makes it so you don't have to. That's part of the reason why it's been gaining so steadily of late, and it's part of the reason those gains will continue.
Hilary Kramer is the editor of GameChangers , Breakout Stocks , High Octane Trader , Absolute Capital Return and Value Authority . She is an accomplished investment specialist and market strategist with more than 25 years of experience in portfolio management, equity research, trading, and risk management. She has extensive expertise in global financial management, asset allocation, investment banking and private equity ventures, and is regularly sought after to provide her analysis on Bloomberg, CNBC, Fox Business Network and other media.
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