Well, it's finally here. The Facebook (NASDAQ: FB) initial public offering, easily the most anticipated Silicon Valley IPO since Google's (NASDAQ: GOOG) in 2004. When Facebook, the largest social media company, priced 421.2 million shares at $38 apiece Thursday afternoon, the high end of the expected range, the company raised $16 billion in the process. When the stock opens for trading on Friday morning, it will have a market cap north of $100 billion, making it more valuable than roughly half of the members of the Dow Jones Industrial Average.
In other words, the Facebook IPO is a big deal and that might be understating things a bit. Not only is the IPO a big deal at the individual stock level, newly public Facebook could prove to have an important impact on select exchange traded funds when it is added to those ETFs in the future.
Along those lines, the Global X Social Media Index ETF (NASDAQ: SOCL), which debuted in November, is the only pure-play social media ETF on the market today and, barring a surprise, it will be the first ETF to include Facebook. SOCL's index allows for new stocks to be added at the end of their fifth trading day, so Facebook could be a part of SOCL as early as May 24 and start influencing the fund at the start of the next trading day.
If Facebook trades higher, growing its market cap in the process, it would be reasonable to expect the stock to immediately become one of SOCL's largest holdings, if not the largest. LinkedIn (NYSE: LNKD), another social media darling, is currently SOCL's largest constituent with an allocation of almost 12%.
Another possible destination for Facebook is the First Trust Dow Jones Internet Index Fund (NYSE: FDN). Google accounts for over 10% of FDN's weight, so it's not hard to envision Facebook sliding into the ETF at some point, though it should be noted FDN's index doesn't rebalance again until the third Friday of June. It's possible that both Facebook and LinkedIn enter FDN's lineup at that point.
The thinly traded and unheralded UBS ETRACS Next Generation Internet ETN (NYSE: EIPO) could be the second destination for Facebook after SOCL because the ETN's index rebalances monthly. From ETFdb.com: "The index to which EIPO is linked is market cap weighted, but calculates market cap including all share classes regardless of who holds them. In other words, Facebook should get a pretty hefty weighting in this ETN, since there is no adjustment made to account for the fact that most shares will still be held by insiders after the IPO."
So for all the consternation and criticism of ETFs being too narrowly focused, it might prove to be an advantage to investors, who look for Facebook exposure without directly owning the stock.