Twitter represented 11.7 percent of SOCL’s portfolio as of Friday, while Facebook was the second-largest holding at 10.4 percent. The portfolio’s top 10 holdings include Alphabet, whose stock price jumped last week after its second-quarter earnings easily beat expectations. Other top 10 positions include Chinese companies Tencent Holdings, Baidu and NetEase. Baidu’s share price is up year-to-date, while the other two are down. Some investors worry about the Chinese government’s attempts to clamp down on social media in that country.
If anything, the SOCL fund’s comparatively less-painful loss of 10 percent during the past three days (though it is in correction mode) versus the bear-market losses for Facebook and Twitter speaks to the advantages of investing in a trend via an ETF’s diversified portfolio. SOCL tracks an index, so it had no choice but to take a beating on the recent bad news regarding Facebook and Twitter, and will continue to take losses in those stocks—assuming more losses are in the offing—until the next index rebalancing in late October enables it to lower its stakes in those two companies, if that’s what the index provider deems appropriate.
While some investors fear that Facebook faces decreased user growth and less profitability going forward, and while Twitter had been priced for perfection and still needs to show it can appeal to a broader audience, it’s clear that social media in general is both the future and the present in terms of how the world works anymore. That said, what's not clear is how long the sector's leading companies can keep their profit-generating machines humming.
Meanwhile, some people are turned off by privacy issues, are uncomfortable with the gobs of time they spend on social media and yearn to get off the social-media grid. But those folks will likely be in the minority.
Investors in SOCL who believe in social media’s long-term staying power should probably stay the course and ride out the storm. And if you really buy into the overall social media story, the fund’s current downturn could be a buying opportunity. It will be interesting to see the fund’s portfolio after the next rebalancing.
And, of course, if you hate social media and have feelings of schadenfreude over Facebook and Twitter’s recent tumbles, then SOCL isn’t the fund for you to begin with.