My refusal to give up on SoFi Technologies (NASDAQ:SOFI) stock in 2022 despite a 55% slide in SOFI stock definitely has me licking my wounds.
A couple of days before it reported earnings in early May, I mentioned how as recently as April, SOFI was a decent weighting in the VanEck Social Sentiment ETF (NYSEARCA:BUZZ). I suggested to readers that an alternative way to bet on the fintech was to buy some shares in BUZZ.
With the student loan moratorium extended through the end of August, SoFi’s profitability pathway has been delayed a few months or quarters. This makes betting on SOFI a difficult one despite the recent rebound.
They say you can go to the well once too often, but I’m doing just that. If you like SOFI but don’t want to risk that its recent gains were a dead cat bounce, you might want to consider the Amplify Digital & Online Trading ETF (NYSEARCA:BIDS).
The Downside Protection for SOFI Stock
Unlike BUZZ, which invests in 75 large-cap stocks getting the most online traction, BIDS tracks the performance of the BlueStar Global E-Brokers and Digital Capital Markets Index. It’s 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||Weight||Market Cap||Company||Weight||Market Cap|
|Charles Schwab (NYSE:SCHW)||8.84%||$130.5B||SoFi||5.27%||$6.5B|
|MarketAxess Holdings (NASDAQ:MKTX)||8.07%||$10.7B||Tradeweb Markets (NASDAQ:TW)||5.04%||$15.7B|
|XP (NASDAQ:XP)||6.68%||$13.7B||Futu Holdings (NASDAQ:FUTU)||4.96%||$5.1B|
|IG Group Holdings (OTCMKTS:IGGHY)||5.67%||$4.0B||Robinhood Markets (NASDAQ:HOOD)||4.75%||$8.1B|
|Interactive Brokers Group (NASDAQ:IBKR)||5.47%||$25.0B||Coinbase Global (NASDAQ:COIN)||3.80%||$15.5B|
The ETF’s top 10 account for 59% of its total net assets, with the remaining 16 stocks accounting for 41% of its portfolio. The smallest holding — CMC Markets — has the smallest weighting at 0.86%. The other 15 stocks are an interesting mix of equities and crypto-related businesses.
If you believe that the markets and crypto will recover at some point, buying BIDS to get a slice of SOFI isn’t a bad call in this market. You can always sell out of it once SOFI and the markets, in general, have gained some momentum.
You might not like all 26 names in BIDS but they’re there to provide a level of diversification you won’t get from owning SOFI or any of the others on a solo basis.
The Biggest Concern for This Type of Bet
Investing in BIDS has one apparent weakness. Can you guess what it is?
Well, it’s not the 0.59% expense ratio because you will pay that on a thematic ETF. It’s the fact it’s only gathered a little under $385,000 in total net assets since its launch in September 2021. That’s just $48,000 per month it’s bringing in.
I don’t know if it still exists, but there used to be a website called ETF Deathwatch that put out a monthly report of ETFs that had closed or were a good bet to close. Amplify’s not the smallest ETF provider with $3.4 billion in assets under management, but it’s certainly not iShares.
There’s a real possibility it could close in the future. In that case, you would either sell your shares or wait to get paid from the liquidation proceeds. It’s not as bad as it seems.
The Bottom Line
I still believe that SoFi CEO Anthony Noto will lead the company out of its current doldrums, and its shares will ultimately trade in double digits. However, it’s not going to get there without a lot of hand wringing from investors. That’s just the way it is.
If you’re wondering, BUZZ and BIDS are both down more than 36% YTD. That’s still a far cry from 52% for SOFI.
What you do depends on your tolerance for risk. Even though I think SOFI will become a leader in financial services, I would never own it without surrounding it with a bunch of fortress-like stocks to offset its volatility.
Despite the latest move, I would be hesitant to buy SOFI without some sign that its business is getting back to normal — upward revision to guidance, etc. — but if you do buy, I’d try to surround it with other quality businesses.
Diversification helps in difficult markets.
On the date of publication, Will Ashworth did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.