Whether You're In the IPO or Not, Facebook (FB) Could Sway Your Portfolio

May 15, 2012 8:06 AM EDT
With the buzz around Facebook's (NASDAQ: FB) IPO reaching a fever pitch, now seems like a prudent time for investors to step back and take a hard look at how the IPO might affect their holdings. Regardless of whether you're planning to scoop up shares of the historic IPO, pull the trigger once the stock enters the secondary market, or simply sit back and watch the feeding frenzy, the Facebook IPO will, without a doubt, affect the value of your investments.

With an estimated market cap of $100 billion, the Facebook IPO (NASDAQ: FB) is a mammoth. On a percentage bases, estimates put its weighting in QQQ (Nasdaq: QQQ), the popular ETF that tracks companies in the NASDAQ, at 3 to 4 percent.

Compared to a company like Apple (NASDAQ: AAPL), which takes up 17.5 percent of QQQ, this might seem like small potatoes, but it is anything but. Over the next year, index mutual funds and ETFs small and large will be rebalancing to include shares of Facebook. Many have already begun selling shares in other tech companies to make room for Facebook.

For example, Global X Social Media ETF (NYSE: SOCL) will be buying shares of FB within weeks, if not days, of the IPO (expected May 18). Other ETFs which are likely to pick up shares of Facebook before the end of the year include Technology Select Sector Index (NYSE: XLK), and Invesco Powershares Dynamic Media (NYSE: PBS).

It is also worth noting that the Facebook IPO is going to be driving markets for at least the next few weeks, and whether investors are bullish or bearish on the company itself, there is a good chance that it will be a proxy for market sentiment, much like Apple.

Speaking of Apple, don't be surprised if Facebook steals the spotlight from Apple for at least the next month or so. This might create a vacuum that could suck volume out of Apple, as the dead money chases the latest fade. Like Apple, Facebook is at least part Hollywood, and this could be both a blessing and curse for the stock – and for your portfolio.


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