Social Media ETFs Off to Slow Start

Swan Lake, MS 11/17/2011 (StreetBeat) – This week, Global X, a boutique fund provider, unveiled the first ever ETF designed to provide investors with dedicated exposure to the burgeoning social media industry. While the firm may be hoping for Facebook-like success with this new launch, it is likely going to take some time before the fund becomes anything to tweet home about.

In the same way that many ETF sponsors looking for new ways to target the bond market have opted to launch foreign debt-backed products, niche corners of the technology sector have become a popular theme among those looking to construct equity-tracking ETFs.

First Trust has been leading the push. The brand new Global X Social Media ETF (SOCL) follows the introductions of products such as First Trust NASDAQ CEA Smartphone Index Fund (FONE) and the First Trust ISE Cloud Computing Index Fund (SKYY).

So far, the performance of these ETF newcomers has been mixed. While SKYY has managed to gather some respectable interest, the same cannot be said for the smartphone ETF. Despite being available since mid-February, the fund's average daily trading volume has remained weak, failing to surpass the 2000 level. During late Wednesday trading, SOCL's volume stood at over 21,000. However, it will likely take longer to determine where this fund eventually falls on this range.

As I've explained in the past, I see potential in the social media realm. Ultimately, however, I would encourage conservative investors to avoid the lure of SOCL at this time.

Aside from the uncertainty surrounding the fund's ability to gather and sustain interest, in looking at SOCL's breakdown, it is likely that those that have not been closely following the proliferation of social media around the globe may be left scratching their heads here.

Domestic investors may be familiar and well-versed with the services provided by household names like Facebook, Twitter, LinkedIn (LNKD), Google +, and Groupon (GRPN).

Unfortunately, the largest percentage of the fund's index is comprised of firms outside the U.S. Investors will have to understand how individuals from around the globe utilize social media in order to fully understand SOCL.

China, in particular, will be of utmost importance. According to the fund's fact sheet, names including Tencent Holdings, Sina (SINA) and Netease (NTES) are three of the fund's top 10 positions, each accounting for a 10% slice of its assets. In total, Chinese firms account for close to 40% of its index.

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