Social Media Invades ETF Space

NEW YORK ( TheStreet) -- It has been a while since we've heard from specialty ETF provider Global X but they have come back to the new-fund table with the Global X Social Media Index ETF ( SOCL).

SOCL is a global fund with 37% in China, 26% in the U.S., 19% in Japan, 9.5% in Russia and much smaller weightings in several other countries. The huge weighting in China obviously means the fund owns Chinese Internet stocks that have been trading for many years like Sina ( SINA), Tencent Holding ( TCEHY) and ( NTES) which all have 10% weightings in the fund.

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The Russian presence is comprised of Mail.RU which provides email and other services and Yandex ( YNDX) which offers a search engine in Russia and several other eastern European countries. The U.S. exposure is a mishmash of companies that would be reasonably expected like Groupon ( GRPN), Linked In ( LNKD) and Pandora ( P) (although as one blogger quipped Pandora is just a radio station). But also in the fund is Nutrisystem ( NTRI), which, although an odd inclusion might be in the fund for its support and counseling offered to customers. Google ( GOOG) is also in the fund -- a legitimate choice in terms of business lines the company is in but perhaps questionable in terms of where the revenue and profit comes from.

The timing of the fund's launch strikes me as being a very opportunistic and shrewd move by Global X. The fund was set up in such a way that the index can be altered to quickly include companies like Facebook, Twitter, Zynga and Yelp should they ever list shares publicly.

From the top down the big-picture utility for a fund like SOCL in a diversified portfolio is to add exposure that offers more growth and more upside volatility should the U.S. market break its current range to the upside. The old standbys like Microsoft ( MSFT) and Intel ( INTC) don't seem to offer much chance for outperforming the technology sector as might be captured by simply owning the Technology Select Sector SPDR ( XLK). While social media has been around for a few years, the stocks are new and the theme has not yet matured. If it evolves as proponents hope then SOCL will turn out to be a successful fund.

There have been similar funds, like the First Trust NASDAQ CEA Smartphone Index Fund ( FONE). One source of ideas for new funds are products and services that could be thought of as add-ons and accessories to the above spaces. While there are not enough companies yet, more IPOs of companies like earphone seller Skullcandy ( SKUL) could make for a niche fund, although I would be very skeptical of a outcome with that sort of granularity.

More fundamentally, another theme to exploit would be the demise of the eurozone, should that happen. Countries like Germany, Finland and Turkey (I believe Turkey would benefit should the euro disappear) would become more attractive and some fund provider could come up with an inverse drachma fund. The one specialty equity ETF that seems to be most clearly missing in my opinion is one tracking publicly traded stock exchanges. In addition to the larger exchanges in the U.S. like NYSE Euronext ( NYX) and the Nasdaq ( NDAQ), exchanges from Australia, Singapore and Brazil are also publicly traded among many others. Given the sorry state of so many banks this seems like an obvious void.

In the nearer term foreign fixed income and low volatility equity funds will continue to dominate the new listings and investors want more yield and less churn in their equity portfolios. These are powerful end-user demands and fund companies would be wise to continue focusing on this need.
At the time of publication, Nusbaum had no positions in any of the stocks listed, although positions may change at any time.

Roger Nusbaum is a portfolio manager with Your Source Financial of Phoenix, and the author of Random Roger's Big Picture Blog. Under no circumstances does the information in this column represent a recommendation to buy or sell stocks. Nusbaum appreciates your feedback; click here to send him an email.