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New fund tracks ‘meme stocks’ after GameStop saga caught Wall Street off guard

Looking for a hot stock to buy? Investors — especially younger millennial and Gen Z traders— are increasingly getting tips from sources like Twitter, Reddit and TikTok. Just look at the GameStop phenomenon.

Picking up on the trend, a Wall Street investment firm is launching a new ETF Thursday to focus on stocks generating buzz on social media.

VanEck, a money manager which already runs exchange-traded funds keyed to big themes such as casinos and sports betting as well as video games, is rolling out the VanEck Vectors Social Sentiment ETF.

The ETF is based on an index created by a Canadian investment company called Buzz Indexes, which uses artificial intelligence technology to screen for 75 large-cap US stocks with positive investor sentiment. The ticker symbol? BUZZ, naturally.

Buzz Indexes founder Jamie Wise, who is also CEO of hedge fund Periscope Capital, told CNN Business that the company adds and removes stocks in the index at the end of each quarter but always maintains a market value minimum of $5 billion for any of its investments. That explains why, despite the significant buzz, GameStop is not in the index — at least not yet.

At the end of December, GameStop was worth $1.3 billion. Following its stunning surge to start the year, the retailer now has a valuation of $8.2 billion. Barring a major collapse this month, GameStop will be eligible to be added to the fund — provided there continues to be enough bullish chatter about it on social media to make it BUZZ-worthy.

There’s more to social investing than WallStreetBets

Although some investors are trying to get rich quick with short-term trades in stocks hyped on Reddit’s popular WallStreetBets board, the BUZZ fund will base most of its investment decisions on more mainstream chatter about blue-chip stocks from users on Twitter and the investing site StockTwits — and not Reddit.

“The timing of the fund’s launch was coincidental with the rise of the individual investor,” said Edward Lopez, head of ETF product for VanEck. “But it has highlighted a trend that has been growing for a number of years.”

Buzz Indexes uses AI to comb through more than 15 million stock-related social media posts each month, Wise said, and then ranks the stocks in the index based on which ones have the most favorable comments.

“We’ve long held that there could be value from the insights of the collective wisdom of individual investors,” Wise added. “But the rise of WallStreetBets is a symptom of a growing trend, not the cause of it. The trade ideas on Reddit and TikTok are a little more niche.”

The top holdings in the VanEck BUZZ fund are currently well-known companies such as Twitter, Ford, Facebook, American Airlines and DraftKings.

It’s also worth noting that the fund only plans to invest in stocks it thinks will increase in value. Wise said that the index does have data about companies that are viewed negatively on social media, but the firm doesn’t intend to launch a separate fund to short-sell stocks based on that data.

“We want to focus more on positive sentiment,” Wise said.

Barstool’s Portnoy is a part owner of Buzz Indexes

Along those lines, casino company Penn National Gaming, which owns a large minority stake in Bartsool Sports and has seen its stock price surge on optimism about expanded legal sports betting, is also in the index.

After Buzz Indexes invested in Penn, Bartstool founder Dave Portnoy, one of the more active traders on social media, decided to take a stake in the index.

“He is a partner and equity owner so he is involved with the index side,” Wise said. “Back in the fall, we had noticed that Penn National Gaming came into the index for the first time so we reached out to him and he got immediately excited.”

Portnoy tweeted Tuesday about the upcoming launch of the fund, calling it “a new ETF that I am a part of, I am putting my face behind, my reputation behind.”

But Lopez pointed out that VanEck is merely licensing the index from Buzz Indexes for its ETF and that it has no affiliation with Barstool or Portnoy.

“This fund is not just about one person’s investing style or risk appetite. And it’s not all high growth names like Tesla,” Lopez said. The Buzz index is up nearly 80% in the past 12 months and has outperformed the S&P 500 over the past three and five years.

Still, it remains to be seen whether the fund can keep up this pace indefinitely. And this isn’t the first time Buzz Indexes has launched a social media-based stock fund.

The first one, called the BUZZ US Sentiment Leaders ETF, began trading in 2016 then shut down in 2019 after the fund’s investment partner, ALPS Advisors, said there had been an “inability to attract significant market interest since the fund’s inception.”

It is possible though that the initial BUZZ ETF was ahead of its time. Much has changed in the world of social media in just the past two years — and the endorsement of Portnoy and Barstool could give the fund a bit more buzz when it begins trading Thursday.

Article Topic Follows: Business

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