Social media ETF is a 'gimmick'

@CNNMoneyInvest December 19, 2011: 1:55 PM ET
Global X Social Media ETF

The Global X Social Media debuted Tuesday. Click the chart for more data.

NEW YORK (CNNMoney) -- A social media exchange-traded fund has made its debut, but experts say to hold off before you "like" and "+1" it to share it with all of your friends.

While the Global X Social Media ETF (SOCL), which began trading Tuesday at $14.98 per share, includes buzzworthy initial public offerings Groupon (GRPN), LinkedIn (LNKD), and Pandora (P), it lacks the world's two rock star social media platforms since they have yet to go public: Facebook and Twitter.

"ETF and mutual fund providers have a habit of launching funds that they think will collect money from investors, but not necessarily make money for investors," said Rick Ferri, founder of Portfolio Solutions and author of The ETF Book. "And I think this might be one of those ETFs."

That's why Ferri and other experts are dismissing the investment value of the ETF, calling it "premature" and a "gimmick" that's capitalizing on the popularity of social media companies even though their record of generating profits is erratic.

"I don't think the firms in this ETF are great proxies for the potential performance of Facebook and Twitter, and I think investors will be disappointed," said Christian Magoon, CEO of Magoon Capital and an ETF industry consultant.

Groupon IPO is hot, but its business prospects? Not.

Despite the lack of publicly traded shares for Facebook and Twitter, Global X Funds CEO Bruno del Ama said the company launched the ETF now because "social media is a global phenomenon that's growing quickly and is transformational, and the investor community wants access."

But buyer beware. Tom Lydon, president of Global Trends Investments and editor of ETF Trends, said the fund will likely "have trouble matching" the rapid growth of the social media industry.

The one favorable aspect of the fund is its diversity, said Magoon, given that it boasts exposure to social media firms across the world.

The Social Media ETF tracks the Solactive Social Media Index, which includes 25 companies such as Russia's Yandex (YNDX), as well as social media firms in the United Kingdom, Germany, Italy, India and Taiwan.

Chinese companies represent the biggest bulk of the portfolio, with Renren (RENN) and Sina Corp. (SINA) in the mix. The largest holding in the fund is Japan's social gaming giant DeNA.

The fund's biggest U.S. stake is in Google (GOOG, Fortune 500), which runs social media platforms Google+ and YouTube. But since Google is not a pure social media play, its weight in the index and the fund is already at its limit.

Despite the variety of social media firms, Magoon says most investors would be better off by betting on broader-based technology companies that have more mature and proven business models and provide the "picks and axes" to social media companies.

Magoon likes the S&P North American Technology-Multimedia Networking Index ETF (IGN), which includes Cisco (CSCO, Fortune 500), Qualcomm (QCOM, Fortune 500) and Juniper Networks (JNPR). He also suggests the Dynamics Software ETF (PSJ), which contains giants like Oracle (ORCL, Fortune 500) and Red Hat (RHAT).

Even the First Trust Dow Jones Internet Index ETF (FDN), which holds companies that generate at least 50% of their revenues from the Internet, like Google, Amazon (AMZN, Fortune 500) and eBay (EBAY, Fortune 500), would serve investors better, Magoon said.  To top of page

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