Make Money in Social Media Stocks the Easy Way

Exchange-traded funds offer a convenient way to invest in sectors or niches that interest you. If you expect the social media industry to keep growing and prospering around the world, the Global X Social Media Index ETF (Nasdaq: SOCL  ) could save you a lot of trouble. Instead of trying to figure out which companies will perform best, you can use this ETF to invest in lots of them simultaneously.

The basics
ETFs often sport lower expense ratios than their mutual fund cousins. The social media ETF's expense ratio -- its annual fee -- is 0.65%, which is a bit steeper than many ETFs', but still considerably lower than most stock mutual funds'.

This ETF doesn't have much of a performance record yet, as it's just a few months old. It's extremely small, too, so if you're thinking of buying, beware of occasionally large spreads between its bid and ask prices. You might want to just keep an eye on it as it matures a bit, or you might want to be an early investor. Remember that as with most investments, we can't expect outstanding performances in every quarter or year. Investors with conviction need to wait for their holdings to deliver.

What's in it?
Several of the companies this ETF owns shares of have been strong performers over the past year. China-based NetEase, for example, gained about 18%, partly on profits from distributing the World of Warcraft video game in China. Indian Internet portal Rediff.com (Nasdaq: REDF  ) gained 7%. Its stock faltered some during the year, but bulls see inevitable profits as India's middle class grows and takes to the Internet. Bears, however, aren't convinced that Rediff will be a major beneficiary of that growth.

Other companies didn't do as well last year but could have positive performance in the years to come. Renren (NYSE: RENN  ) , which some call China's Facebook, debuted in 2011 and lost more than 80% during the year. It's growing briskly, but it's also seeing its costs grow significantly, and is spending aggressively on marketing to fuel its growth. My colleague Sean Williams thinks 2012 may not be its year, either.

Mobile app maker Sky-mobi (Nasdaq: MOBI  ) sank about 39%, as users are performing fewer downloads than expected of its offerings. It signed a promising deal to provide SINA's (Nasdaq: SINA  ) microblogging site as an app, but it's also tied more to lower-tech phones than today's popular smartphones. SINA, meanwhile, fell about 22%, as some worry whether the Chinese government will hamper the growth of its platform, due to the free expression possible there.

The big picture
A well-chosen ETF can grant you instant diversification across any industry or group of companies -- and make investing in and profiting from it that much easier.

Learn about "The 5 ETFs That Could Soar in 2012." And if you're looking for some great investments beyond ETFs, consider these "12 Dividend Stocks for 2012."

Longtime Fool contributor Selena Maranjian holds no position in any company mentioned. Click here to see her holdings and a short bio. Motley Fool newsletter services have recommended buying shares of Sina and NetEase.com. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.


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