Is Social Media Really an Asset Class?

Swan Lake, MS 11/22/2011 (StreetBeat) – It's amazing how quickly Wall Street can throw together an exchange-traded fund. Last week, Global X launched the Social Media Index (SOCL) ETF, which began trading Tuesday, although on very low volume.

That this ETF is coming from a company with "global" in its name is fitting: After all, the index would be sparse if it only comprised U.S.-based social media companies. Only a handful of such operators have gone public over the past year, such as Groupon (GRPN), Pandora (P) and LinkedIn(LNKD).

But more than one-third of the ETF's portfolio includes Chinese-based operators. Some include Tencent Holdings and Sina(SINA).

While social media is a global phenomenon, the Chinese market has seen several IPO disasters, such as Renren(RENN). A big reason has been intense competition, but there also have been questions about accounting.

As other top social media companies come public -- like Twitter, Zynga and Facebook -- Global X will likely include them in the index. But this will be done after the IPO. In other words, investors of the ETF won't get the first-day "pop."

There seems to be little doubt that social media will continue to grow. But is it really an asset class? Probably not. Besides, as seen with implosions of companies like MySpace, the risks are certainly great.

Social media should be a small part of a person's portfolio as an opportunity to juice things up -- but it should be done with lots of caution.

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