If you thought that an ETF made up of the most vibrant stocks, as determined by social media chatter, seemed like the logical end to the late January Reddit-powered roller coaster ride in the stock market, then you were right.
On Thursday, asset manager VanEck will launch the VanEck Vectors Social Sentiment ETF, which offers exposure to stocks with “the most optimistic investor sentiment and perception.” On Tuesday, however, VanEck’s plans to roll out the fund in the standard orderly fashion fell victim to the 2021 curse.
Dave Portnoy, founder of Barstool Sports and self-proclaimed king of the retail boom, tweeted an elaborately produced video about the “emergency press conference” to debut the ETF.
Portnoy is a shareholder in the company that created the index that underpins the fund, a VanEck spokesperson confirmed, though the company did not respond to a question of whether it had a role in the staged press conference.
In fact, the stunt was also an uncomfortable reminder that one man’s metameme could be another’s market manipulator.
“This is more vague than anything else I can think of in terms of who Portnoy is and how what will drive the components of the index will be affected by the stocks he talks about on social media,” said Todd Rosenbluth, head of ETF. and mutual financing for CFRA. “To be clear, I understand that companies will enter the index based on various factors.”
“The product is kind of amazing,” said Tyler Gellasch, Healthy Markets Executive Director. Gellasch thinks the ETF “appears to be taking advantage of what could very well be defined by SEC and FINRA as market manipulation,” he said in an interview.
“People who may have a direct influence on the value of the individual securities are involved in offering the product. Think of all the potential conflicts of interest and self-service you might have, things like potential front-running. Their own Twitter feeds, their own public statements can change the value of the underlying securities and affect the underlying portfolio. “
VanEck also did not immediately respond to those concerns.
Related: Are ETFs Safe … For Retail Investors?
Speaking to MarketWatch on the same day that Gary Gensler, President Joe Biden’s election as chairman of the Securities and Exchange Commission, raised questions from the Senate Banking Committee, including many about the GameStop GME,
trade story, Gellasch noted that many in the regulatory community had indicated that such activities “should be scrutinized.”
As for the merits of the new ETF, “There is an investment issue surrounding using sentiment to select stocks,” said Rosenbluth. “I think the ETF will grab attention, not just because of Portnoy’s name, but because this is a safer way for anyone sitting on the sidelines and watching the GameStop craze to participate. It will be diversified, including some undervalued stocks that could flip, and some with fundamental business cases. “
The fund’s holdings are primarily large-cap growth companies such as Twitter Inc., TWTR,
Facebook Inc. FB,
and Amazon.com Inc. AMZN,
There are also plenty of current brands loved by retailers such as Draftkings Inc. DKNG,
Tesla, TSLA,
and Penn National Gaming PENN,
a co-owner of Barstool Sports for which Portnoy is known.
But there are also plenty of old-fashioned blue chips, such as Exxon Mobil Corp. XOM,
and BlackRock Inc. BLK,
Ironically, the fund is expected to rebalance once a month, which is common when compared to most ETFs, Rosenbluth noted, but perhaps too little to capture massive moves in popular stocks.
“Is that a good thing or a bad thing?” he asked rhetorically.
“It helps investors, companies, or really anyone in the capital markets when we keep seeing company stock prices completely decoupled from their fundamental values,” said Gellasch. “Our capital markets are there to channel money from investors to good companies that are doing well and growing our economy. If stock prices don’t relate to that fundamental goal, everything will break. These things seem like fun, like lottery-style gambling, but then again, there are real businesses and jobs and retirement savings. “
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