Why Investors Have a Hard Time Investing in Social Media and Media Funds

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Social media is a powerful force in society today as it allows users to amplify their voices and interact with the world. Some great causes and undertakings have been supported on the back of social media but, on the other hand, public shaming has not gone out of style. With such a revolutionary force at our disposal, there’s no doubt that people will attempt to profit from it.

Media companies in general act similarly, but more as a way to distribute news and information. There is less of a personal interaction with that type of platform than with social media, as users are mainly on the receiving end. However, this doesn’t diminish the effect in the least.

One main problem with investing in social media is the risk associated with it. Picking a single company like Facebook or Twitter can be profitable, but with that comes a lack of diversity the average investor might need. At any time, and as we have seen over the past few years, executive of these major social media companies have been pulled before Congress, the companies have been sued, and they have even sold user data to third parties. Each of these has been a step toward more potential regulation for these platforms and step back for shareholders looking for gains.

With a diversified perspective, risk is mitigated and the latest whim of Mark Zuckerberg might not cost investors as much. Exchange-traded funds (ETFs) help to reduce this risk while providing exposure to the industry as whole. However, as there are a limited number of public social media companies, there are few ETFs as well. ETF Database has collected much of the information surrounding these ETFs, among others, and made it easily accessible for those looking to get into the game.

A couple of heavily leveraged social media ETFs launched in January of this year: Direxion Daily Communication Services Index Bull 3X Shares (NYSEARCA: TAWK) and Direxion Daily Communication Services Index Bear 3X Shares (NYSEARCA: MUTE). These ETFs are more for active traders looking to magnify a short-term perspective with a three-times leverage. It’s worth noting that with this leverage comes much more risk.

Global X Social Media ETF (NASDAQ: SOCL) has been around since 2011, and it aims to track the Solactive Social Media Index. This ETF targets companies in the global social media industry and offers efficient access to a broad basket of social media companies around the world. It was last seen to have $142.3 million in assets under management. Its overall expense ratio is 0.65%, and it has traded up 24% so far in 2019. This fund has a total of 38 holdings. The top 10 holdings include a few foreign-listed shares out of China with many from the United States:

  1. Tencent (12.44%)
  2. Twitter (12.07%)
  3. Facebook (10.95%)
  4. NAVER (5.99%)
  5. NetEase (5.48%)
  6. Alphabet (4.89%)
  7. IAC/InterActiveCorp (4.68%)
  8. Yandex (4.43%)
  9. Spotify (3.69%)
  10. Baidu (3.52%)

As for media ETFs, Invesco Dynamic Media ETF (NYSEARCA: PBS) has been around since 2005, and it aims to track the Dynamic Media Intellidex Index. The fund targets companies that are principally engaged in the development, production, sale and distribution of goods or services used in the media industry. It has $85.2 million in assets under management, its overall expense ratio is 0.63% and it was last seen trading up nearly 24% so far in 2019. This ETF’s top 10 holdings include many large-cap domestic firms:

  1. Disney (6.77%)
  2. Twitter (5.41%)
  3. Alphabet (5.40%)
  4. Facebook (5.27%)
  5. Spotify (4.73%)
  6. CBS (4.72%)
  7. Sirius (4.72%)
  8. Nexstar Media (3.29%)
  9. Gray Television (3.27%)
  10. Sinclair Broadcast (3.23%)

Communication Services Select Sector SPDR Fund (NYSEARCA: XLC) has been around since June 2018, and it tracks the S&P Communication Services Select Sector Index. The ETF targets companies representative of the communications services sector in the S&P 500 Index. It had $5.88 billion in assets under management. Its overall expense ratio is 0.13%, and it has traded up 24% year to date. The fund’s top 10 holdings are practically all large-cap domestic firms:

  1. Facebook (18.44%)
  2. Alphabet Class C (12.06%)
  3. Alphabet Class A (11.78%)
  4. Disney (5.20%)
  5. Activision Blizzard (4.93%)
  6. AT&T (4.76%)
  7. Comcast (4.76%)
  8. Verizon (4.76%)
  9. Charter Communications (4.67%)
  10. Netflix (4.64%)

As you can see, the media and social media ETFs can be rather different in scope, but there are many overlaps as well as differences. The recent industry rebalance into communications services also made the sector only that much more complicated.


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