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My refusal to give up Sofi Technologies (NASDAQ:SOFI) stock in 2022 despite a 55% drop in SOFI stock is definitely making me lick my wounds.
A few days before reporting earnings in early May, I mentioned that last April SOFI had a decent weighting in the VanEck Social Sentiment ETF (NYSEARC:BUZZ). I suggested to readers that another way to bet on fintech was to buy shares of BUZZ.
With the student loan moratorium extended to the end of August, SoFi’s profitability trajectory has been set back by a few months or quarters. This makes betting on SOFI difficult despite the recent rebound.
They say you can go to the well one too many times, but that’s exactly what I do. If you like SOFI but don’t want to risk its recent gains being a dead cat bounce, you might want to consider the ETFs Amplify digital and online trading (NYSEARC:OFFERS).
Downside protection for SOFI stocks
Unlike BUZZ, which invests in 75 large-cap stocks getting the most traction online, BIDS tracks the performance of the BlueStar Global E-Brokers and Digital Capital Markets Index. It is a collection of stocks that provide online securities brokerage and lending, market making, and digital asset capital markets.
Here are the top 10 holdings:
|Company||lester||Market capitalization||Company||lester||Market capitalization|
|Charles Schwab (NYSE:SCHW)||8.84%||$130.5 billion||SoFi||5.27%||$6.5 billion|
|MarketAxess Holdings (NASDAQ:MKTX)||8.07%||$10.7 billion||Tradeweb Markets (NASDAQ:TW)||5.04%||$15.7 billion|
|XP (NASDAQ:XP)||6.68%||$13.7 billion||Future Holdings (NASDAQ:FUTURE)||4.96%||$5.1 billion|
|IG Group Holdings (OTCMKTS:IGGHY)||5.67%||$4.0 billion||Robinhood Markets (NASDAQ:HOOD)||4.75%||$8.1 billion|
|Group of interactive brokers (NASDAQ:IBKR)||5.47%||$25.0 billion||Coinbase Global (NASDAQ:PIECE OF MONEY)||3.80%||$15.5 billion|
The ETF’s top 10 make up 59% of its total net assets, with the remaining 16 stocks making up 41% of its portfolio. The smallest farm — CMC Markets — has the lowest weighting at 0.86%. The other 15 stocks are an interesting mix of crypto-related stocks and companies.
If you think the markets and crypto will rally at some point, buying BIDS to get a slice of SOFI is not a bad move in this market. You can still sell some once SOFI and the markets, in general, have gained momentum.
You might not like all 26 BIDS names, but they’re here to provide a level of diversification that you won’t get from owning SOFI or any of the others on a stand-alone basis.
The biggest concern for this type of bet
Investing in BIDS has an apparent weakness. Can you guess what it is?
Well, that’s not the 0.59% expense ratio, because you’ll be paying that on a thematic ETF. It is the fact that it has only gathered just under $385,000 in total net assets since its launch in September 2021. This is only $48,000 per month that it brings in.
I don’t know if it still exists, but there was a website called ETF Deathwatch that published a monthly report of ETFs that had closed or were a good bet to close. Amplify isn’t the smallest ETF provider with $3.4 billion in assets under management, but it certainly isn’t iShares.
There is a real possibility that it will close in the future. In this case, you would either sell your shares or wait to be paid from the liquidation proceeds. It’s not as bad as it looks.
I still believe SoFi CEO Anthony Noto will pull the company out of its current slump and its shares will eventually trade in double digits. However, it won’t get there without a lot of twisting from investors. It’s like that.
If you’re wondering, BUZZ and BIDS are both down over 36% year-to-date. This is still far from 52% for SOFI.
What you do depends on your risk tolerance. While I think SOFI will become a leader in financial services, I would never own it without surrounding it with a bunch of fortress-type stocks to offset its volatility.
Despite the latest decision, I would be hesitant to buy SOFI without any sign that its business is returning to normal – guidance upgrades, etc. – but if you buy, I would try to surround it with other quality companies.
Diversification helps in difficult markets.
As of the date of publication, Will Ashworth had (neither directly nor indirectly) any position in the securities mentioned in this article. The opinions expressed in this article are those of the author, subject to InvestorPlace.com publishing guidelines.
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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.