Todd Shriber: All the fervor surrounding recent and upcoming Internet IPOs has plenty of folks drawing comparisons to Silicon Valley circa 1999-2000. While I count myself among those seeing the comparisons as valid, I sure hope the comparisons prove wrong.
Thankfully, I’m still young enough to remember my first post-college job where I was a reporter with a major financial news agency. I remember many days of just looking at the insane run-up to triple-digit prices for a host of Internet and tech companies, many of which were unprofitable. And I also remember, as I’m sure many readers do, the subsequent bloodbath that led to the disappearance of many former high-fliers such as e-Toys. Even some of the companies that survived are unlikely to see their pre-bubble stock prices ever again. JDS Uniphase (NASDAQ:JDSU) is one prime example.
Yet here we are again in days that can be described as bubble-licious. The enthusiasm comes by way of companies like LinkedIn (NYSE:LNKD) that have already gone public and the anticipation of coming IPOs from the likes of Facebook, Groupon, Zynga and others.
Not surprisingly, the ETF industry is looking to capitalize on this trend, but that doesn’t necessarily mean ETF investors need to be the fools that rush in. UBS recently rolled out the eTracs Internet IPO ETN (NYSE:EIPO) and a leveraged cousin, the 2X Leveraged eTracs Internet IPO ETN (NYSE:EIPL).
I have proclaimed my quibbles with IPO ETFs in the past, saying that it takes too long for them to add the really sexy new offerings and that they often hold stocks well past the time those stocks can be considered “new.” Along those lines, EIPO does offer monthly rebalancing to accommodate new IPOs after they have booked five trading days with decent volume.
So in theory, EIPO could rebalance to feature Facebook once the social networking giant goes public and has traded for a few days and that could make EIPO worth a look then. For now, the ETN is plagued by scant volume and exposure to troublesome recent offerings such as China’s Renren (NYSE:RENN). I’m not saying EIPO will never be a good fund, but I think investors can probably pass on it for the time being.
Global X is also planning a social media equity-based ETF, but no debut date was announced in the recent filing. I’ll admit my curiosity here is piqued, but this will likely be a passively managed ETF and if it comes to market before the IPOs of Facebook, Groupon and friends, it could be while before this ETF rebalances and becomes a legitimate way for gaining exposure to those stocks.
That said, if Facebook and Groupon quickly sport price tags that conjure up images of Apple (Nasdaq:AAPL) or Google (Nasdaq:GOOG) and the Global X ETF can feature 10% or higher exposure to Facebook and Groupon, the ETF might just be compelling.
The other side of the coin is that history has a way of repeating itself, especially in the financial markets, and if we see a sequel to Silicon Valley 1999-2000, it will be pretty easy to figure out what exchange traded products to avoid.
Todd Shriber is an ETF fanatic, a former hedge fund trader, and a journalist. Todd started his professional career with Bloomberg News, where he covered banks, energy and technology. After leaving Bloomberg, Todd became a trader at a California-based hedge fund where he specialized in trading financials, energy, basic materials, and ETFs.
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