Social media ‘Buzz’ ETF tracking launches amid stock Reddit manias

Is it time for an ETF that measures hype?

Measuring the buzz around stocks mentioned on social media is all the rage. Now, that’s what an exchange-traded fund is for.

The Van Eck Vectors Social Sentiment ETF (BUZZ) selects 75 stocks with the most optimistic social media sentiment and packs them into an ETF.

This is essentially a momentum index, but instead of tracking stocks that are moving in price, BUZZ is tracking stocks that are getting a lot of social media hype.

The ETF is based on the Buzz NextGen AI US Sentiment Leaders Index. What appears in the index is based on an initial list of stocks that meet two criteria: stocks that have a minimum market cap of $ 5 billion and have received consistent and diverse social media mentions over the past year. The 250-350 stocks that meet that initial criteria are ranked each month from the highest sentiment to the lowest, with the top 75 going in the index.

If you’re looking for something that captures the Reddit sentiment around small stocks like GameStop, you might be disappointed.

“This is not an ETF of Reddit meme stocks,” said Jamie Wise, CEO of Buzz Holdings and the creator of the index. “This is about the wider conversation around stocks mentioned on social media platforms. We use broad social media resources, mainly Twitter and StockTwits.” Wise said it also uses Yahoo Finance, Benzinga, and Reddit.

How do you determine ‘buzz on social media’? Wise says the index uses natural language algorithms that examine whether the comment is positive, negative, or neutral, then ranks each stock based on the degree of positive sentiment and the breadth of the discussion. That’s the key to understanding the index: stocks are weighted by sentiment, not market capitalization, and no stock should exceed 3% of the index. It is rebalanced every month.

“We’re pooling the collective sentiment of the community,” commenting on shares on social media, Wise told me.

Initially, the largest holdings were Twitter, DraftKings, Ford, American Airlines and Facebook. Tesla is number 10. The minimum market cap of $ 5 billion would exclude Reddit names like Gamestop, Express or AMC Entertainment from the mix.

Wise says the stocks in the index are proof that they are not on the hunt for the latest Reddit craze: “These are not the kind of stocks promoted by celebrities. These are everyday stocks promoted by people of a wide range. of views, and that’s not focused on a small group of Reddit names. “

Measuring stocks by price momentum has been around for a long time: many ETFs already do. The largest, iShares Momentum ETF (MTUM), selects stocks based on price gains over 6 and 12 months and low volatility over the past three years.

But measuring momentum based on the social media hype hasn’t been around for long. The index on which BUZZ is built has only been live since December 2015.

Wise says the index has outperformed the S&P 500 in four of the past five calendar years.

BUZZ vs. Momentum (since inception: 18/12/15)

• BUZZ index: up 215%
• Momentum ETF (MTUM) up 119%
• S&P 500: up 113%

Source: Buzz Holdings

Much of that outperformance came in 2020. Wise says that’s no coincidence: social media has exploded over the past year and a half, which is consistent with that outperformance.

“This shows that sentiment momentum has outperformed price momentum and market cap momentum,” Wise told me for the past five years.

Chat rooms are full of investors with many different motives, including some who are likely trying to manipulate stocks.

Wise says the index’s focus on stocks with a market cap of more than $ 5 billion reduces the likelihood that stocks can be manipulated in the index. “The magnitude of market capitalization and the volume of discussions taking place around these companies makes them difficult targets for manipulation by bad actors,” states a Van Eck FAQ magazine.

Internet celebrity and blogger Dave Portnoy co-owns Buzz Holdings, which owns the index on which the ETF is based.

This is problematic for some ETF viewers: “We have an index company owner who hypertensive an index that is itself the subject of the index,” said Dave Nadig, director of research at ETF Trends. “The purpose of the index is to find stocks that have been hyped, but Portnoy is the one who hypnotizes the stocks. He is the subject of his own methodology.”

It highlights the “hall of mirrors” aspect of social media staring at themselves, says Nadig: “Is social media data worth analyzing? Yes. But it’s the self-referential quality of social media: they know they’re being watched.” so it is not clear how much value is extracted in the long run.

Wise declined to reveal how much of Buzz Media Portnoy owns, but insisted that Portnoy was just a catalyst for a conversation: “He’s not here to tell people what to invest in. people talk about it. The community might agree or disagree. Are they still talking about it two weeks later? We’re measuring if it’s still a topic. Just because Dave says, “I love Shopify,” still wants that don’t say it in the index. “

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