Social Media is a “Super-Cycle” Built for Two – or Two Billion (part 3)
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This week Global X Funds celebrates the one year anniversary of their Global X Social Media Index ETF (NASDAQ: SOCL). CEO Bruno del Ama discusses the reasoning behind the fund and considers trends and projections based on previous revolutions in global business.
[continued from part 2]
Slepko: SOCL tracks the Solactive Social Media Index. What is Global X’s relationship with Solactive and how much input/influence do you have on the composition of SOCL’s index?
del Ama: Solactive is the index brand name of index provider Structured Solutions. They are one of the index providers we work with along with companies such as FTSE or S&P – and they have a particular expertise with commodity producers and emerging market indices. For the Social Media Index, we did collaborate with Structured Solutions and have input into the initial creation of the index. The weighting is largely determined by market cap, although there are two tiers: pure-play social media companies, and firms with large social media assets. The latter are capped at a maximum 5% weight of the ETF.
For instance, Google’s (NASDAQ: GOOG) market capitalization is much larger than that of any of the other companies in the ETF, but the holding has a smaller weight than Facebook, Tencent, Sina Corp, LinkedIn, or DeNA, which are pure play social media companies. Google’s assets include YouTube and Google Plus, but because these assets do not drive the majority of Google’s revenues, Google is limited to 5%. The purpose for this is to include companies that are major players in social media, but also to ensure that these companies don’t outweigh the more pure-play social media companies.
Slepko: Currently, you have 13 US companies accounting for 40% of the ETF’s net assets. The proportion of the ETF that is comprised of American stocks has increased substantially over the year. Why?
del Ama: A lot of that is driven by IPO activity in the US since the fund’s inception [Nov. 14, 2011], which includes Facebook, LinkedIn, Pandora, and Groupon. Most of the international holdings were already public, although [South Korean social game maker] Nexon also IPO’d in Japan after the fund’s inception.
del Ama: A significant aspect of social media that sets it apart from other industries is direct interaction with users. In the case of Pandora, while it clearly falls in the broader “Internet” category as well, the company has also built constant user feedback into its platform and therefore applies one of the key characteristics of social media. Demand Media has a range of services but a primary focus is on social media solutions – allowing users to engage each other during live events, providing online community platforms for brands, etc. The company is clearly positioning itself for further growth in social media and fits well in this context. Nutrisystem is an example of a non pure-play social media company – a big part of their success has been the user interaction and monitoring the company provides, but since this isn’t the primary driver of its business the company falls under the same cap described in the Google example.
[continued in part 4]
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