Bears Miss Opportunity With Social Media ETF

The Global X Social Media ETF SOCL is down 13.2 percent this year, a decline that might imply short interest in the dedicated social media exchange traded fund and its nearly 30 holdings is on the rise.

SOCL's top 10 holdings, a group that combines for about 70 percent of the ETF's weight, reads like a graveyard of Internet and social media stocks. It is reasonable to surmise that if not for the 3.1 percent year-to-date gain posted by Facebook Inc FB, SOCL's largest holding at a weight of 12.4 percent, the ETF's 2016 showing would be even worse.

Still, short sellers have not been attacking the ETF and its constituents the way some would expect.

“SOCL constituents saw short interest hover at two year lows prior to selling off heavily in 2016,” said Markit in a recent note. “Only seven SOCL constituents see more than 3% of their shares out on loan led by Pandora. Investors have withdrawn over a quarter of SOCL’s AUM since the start of the year.”

China's Tencent Holdings Ltd. TCEHY, Yahoo! Inc. YHOO and Google parent Alphabet Inc GOOGL, a trio that combines for 21.5 percent of SOCL's weight, are off an average of about six percent this year. Those declines are tame compared to the 46 percent lost by LinkedIn Corp. LNKD. The bulk of that stock's loss occurred after its most recent earnings update earlier this month.

Good thing Twitter Inc TWTR is no longer a member of SOCL's top 10 lineup because, on the back of contracting user growth and an inability to be consistently profitable, that stock is down 22.5 percent. Twitter traded around $35 and SOCL around $21 when Jack Dorsey returned to run Twitter last year. Last Friday, both the stock and the ETF closed below $18.

The average percentage of shares out on loan for SOCL holdings is just over 2 percent and just seven of the ETF's holdings, including Twitter, have shares on loan percentages topping three percent, according to Markit.

“Investors in SOCL have shown little patience to ride out the recent volatility as over $32m of funds have flowed out of the ETF since the start of the year. These strong outflows represent over a quarter of the AUM managed by the fund at the start of the year which underscores the wave of negative sentiment felt by the sector since the start of the year,” said the research firm.