ETFs At Risk As Facebook Faces A New Paradigm (XLK)

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April 6, 2018 6:05am NYSE:XLK

NYSE:XLK | News, Ratings, and Charts

From Zacks: Facebook (FB – Free Report) shares suffered a bloodbath following criticism of its management of user data. The stock has declined more than 16% since the news of the data breach did the rounds in March.


Facebook stated that data of around 87 million users, mostly in the United States, was obtained improperly by data mining firm Cambridge Analytica. This week has been crucial for Facebook, as it outlined methods to safeguard the data of its 2 billion users by imposing a stricter data policy (read: Is The Bull-Run for Tech ETFs Over?).

Into the Headlines

Facebook witnessed some recovery in its share prices as CEO Mark Zuckerberg stated that the data breach debacle did not have a material impact on the business, but made the company committed to protect user data from malicious use. The social media giant made multiple revelations on Apr 4, including a confirmation that it scans links and images sent via Facebook Messenger (read: Is the Rout in Tech ETFs Transitory?).

“For example, on Messenger, when you send a photo, our automated systems scan it using photo matching technology to detect known child exploitation imagery or when you send a link, we scan it for malware or viruses,” per a Bloomberg article citing a Facebook Messenger spokeswoman. “Facebook designed these automated tools so we can rapidly stop abusive behavior on our platform,” she added.

Another major revelation was the removal of a feature that allowed Facebook users to enter phone numbers or email addresses to search for public profiles. This feature was being used by people with wrong intentions to get public profile information. “Most people on Facebook could have had their public profile scraped in this way,” Facebook said.

Moving on to Cambridge Analytica, Zuckerberg said on a conference call, “We didn’t take a broad enough view of what our responsibility was and that was a huge mistake. It was my mistake,” adding “We’re broadening our view of our responsibility.”

Here are some ETFs that focus on providing exposure to the social media giant (see all Technology ETFs here).

Technology Select Sector SPDR Fund (XLK – Free Report)

XLK is a relatively cheaper bet on the technology sector. This fund has AUM of $20.1 billion and charges a fee of 13 basis points a year. The fund has 6.2% exposure to Facebook. The fund has returned 24.5% in a year and 2.6% year to date. XLK has a Zacks ETF Rank #2 (Buy), with a Medium risk outlook.

Global X Social Media Index ETF (SOCL – Free Report)

This fund provides exposure to the global social media sector. It has AUM of $201.8 million and charges a fee of 65 basis points a year. The fund has 8.5% exposure to Facebook The fund has returned 38.0% in a year and 2.5% year to date. SOCL has a Zacks ETF Rank of #3 (Hold), with a High risk outlook.

First Trust Dow Jones Internet Index (FDN – Free Report)

This fund is one of the most popular bets in the Internet segment of the U.S. technology sector. It seeks to invest in companies that derive at least 50% of its revenues from the Internet. It has AUM of $6.7 billion and charges a fee of 54 basis points a year. The fund has 7.8% exposure to Facebook.  The fund has returned 35.8% in a year and 8.6% year to date. FDN currently has a Zacks ETF Rank of #2, with a High risk outlook.

The Technology Select Sector SPDR Fund (XLK) was unchanged in premarket trading Friday. Year-to-date, XLK has gained 2.67%, versus a -0.46% rise in the benchmark S&P 500 index during the same period.

XLK currently has an ETF Daily News SMART Grade of A (Strong Buy), and is ranked #1 of 61 ETFs in the Technology Equities ETFs category.


This article is brought to you courtesy of Zacks Research.


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