The global social media industry continues to grow, but investing in individual companies' stocks can be messy even after doing ample research. For those investors looking for an easy way into the market, the Global X Social Media Index ETF (NASDAQ: SOCL) might be a good choice. Exchange-traded funds allow investors to buy into a bunch of related companies by buying shares in just one fund.
But why social media?
Whether you are a fan of social media or not, there are plenty of reasons to be an investor in the space. Billions of people use social media, and that number is expected to keep growing, according to statistics portal Statista. In 2017, nearly 2.5 billion people will be using a social site of some type, but that number could cross the 3 billion mark by the year 2021.
Why the continued increase? One reason is that new platforms geared to new audiences are being created. Social media can be used to stay in touch with family and friends, meet new people, manage business relationships, and find reviews for things you want to buy. Popular sites are constantly adding new features; for example Facebook's (NASDAQ: FB) new food ordering service.
Another reason is that the percentage of the world's population with access to the internet keeps going up. There are now more than 3.5 billion people on the internet, but that's still only about half the world's population. With internet users on the rise, social media stands to continue growing as well.
How the index works
The Global X Social Media Index ETF is comprised of roughly 30 social media companies from around the world. Launched in 2011, the fund has done very well, reflecting the strong growth of social media in the last few years.
The ETF charges 0.65% each year to shareholders, or $6.50 for every $1,000 invested. That's not as cheap as some, like the 360-stock Vanguard Information Technology ETF (NYSEMKT: VGT) at 0.1%, but that's the cost for targeted exposure to a small number of technology companies that play in the social media sandbox.
While the performance of the social media ETF has been strong, it does have a short track record at less than six years. Social media stocks can be a volatile ride, so investors should be aware that wide swings in value are possible. While the ETF has 32 holdings as of today, it is also important to bear in mind that most of the index is dedicated to the top 10 holdings in the index.
To think about...
This ETF isn't a diversified investment, so don't put too much of your portfolio here. But if you're short on investable funds or you aren't interested in doing the research into individual companies, this ETF could be a great way to get exposure to the social economy with the big global companies in its top 10 holdings. The fee is reasonable, and the index spreads its holdings out to get representation from around the globe.
However, not all social media companies are created equal, and as with many index funds, you get the good along with the bad. If picking the best of the best is your thing, and you have enough money to properly diversify, you could do much better selecting a few individual social media companies and holding for the long term.
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Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool's board of directors. Nicholas Rossolillo owns shares of Facebook. The Motley Fool owns shares of and recommends Alphabet (A shares), Alphabet (C shares), Facebook, NetEase, and Twitter. The Motley Fool recommends Sina, Weibo, and Yandex. The Motley Fool has a disclosure policy.