A Socially Awkward ETF?
November 17, 2011
As you can see, while AXIT—the red line at the bottom of the chart—meandered along in a rather consistent pattern, the top five holdings of SOCL exhibited much more volatility, with the majority of them seeing significant gains over the past year.
This is due largely to the fact that any overlap between SOCL and AXIT, like Tencent, is overshadowed by AXIT’s more substantial weightings in large-cap technology firms like Nintendo, NEC and Fujitsu.
The takeaway? It does appear that SOCL may in fact provide unique exposure after all.
The only reason I hedge that statement is because we have no way of knowing how the social media landscape will develop over the coming months and years. Google, one of the fund’s top 10 holdings, has been aggressive in pursuing a social media mandate, and yet its identity as a tech company is still firmly entrenched in investor psyches. Time will tell if it succeeds in expanding the public’s perception.
In addition, the eventual IPOs of Twitter, Facebook and Zynga feel like mere formalities at this point, meaning the fund could eventually look very different than it does now.
Equipped For Changes
Cleverly, SOCL builds such inevitable changes right into its very structure.
The index provider has made it clear that an IPO of any of these companies represents an extraordinary market event that will allow for a special rebalancing, outside of the otherwise prescribed twice-a-year rebalancings.
One additional caveat that SOCL investors need to be aware of is the risks of investing in international companies.
Global exposure can be a great thing, but in the context of a diversified portfolio of stocks, too much of a good thing can increase risk. As such, make sure the international weighting of the fund fits your profile and objectives.
To bring this discussion full circle, it seems my discounting of SOCL’s potential was misguided and perhaps symptomatic of my U.S.-centric view.
This fund offers exposure to a powerful, specific trend in a global manner.
In other words, it’s time for me to eat crow. Just make sure it’s cooked medium rare.