‘Buzz’ ETF monitoring social media sentiment launches Thursday amid Reddit manias in shares

Is it time for an ETF that measures hype?

Measuring the excitement round shares talked about in social media is all the fashion.  Now there’s an exchange-traded fund for that.

The Van Eck Vectors Social Sentiment ETF (BUZZ) selects 75 shares with probably the most bullish social media sentiment and packages them into an ETF.  

That is primarily a momentum index, however as a substitute of monitoring shares which are transferring on value, BUZZ tracks shares which are getting a number of social media hype.

The ETF relies on the Buzz NextGen AI U.S. Sentiment Leaders Index. What goes within the index relies on an preliminary record of shares that meet two standards: a $5 billion minimal market capitalization, and which are getting constant and numerous mentions on social media over the previous yr. There are 250-350 shares that meet that preliminary standards, then every month they’re ranked from highest sentiment to lowest, with the highest 75 going within the index.

When you’re on the lookout for one thing that captures Reddit sentiment round small shares like GameStop, you is perhaps dissatisfied.

“This isn’t a Reddit meme inventory ETF,” Jamie Clever, CEO of Buzz Holdings and the originator of the index, tells me. “That is in regards to the broader dialog round shares talked about on social media platforms.  We’re utilizing broad social media sources, principally Twitter and StockTwits.”  Clever say in addition they use Yahoo Finance, Benzinga, and Reddit as nicely.

The best way to decide “social media buzz?” Clever says the index makes use of pure language algorithms that examines whether or not the remark is constructive, adverse or impartial, then ranks every inventory based mostly on the diploma of constructive sentiment and breadth of debate. That is key to understanding the index: shares are weighted by sentiment, not market capitalization, and nobody inventory can exceed 3% of the index. It’s rebalanced each month. 

“We’re aggregating the collective sentiment of the neighborhood” that feedback on shares on social media, Clever instructed me.

Initially, the most important holdings embrace Twitter, DraftKings, Ford, American Airways, and Fb. Tesla is quantity 10. The $5 billion minimal market cap standards would exclude Reddit names like Gamestop, Specific, or AMC Leisure from the combination.

Clever says the shares within the index are proof they don’t seem to be chasing the newest Reddit craze: “These should not the type of shares which are being promoted by celebrities. These are on a regular basis shares being promoted by folks with all kinds of viewpoints, and isn’t targeted on a slim group of Reddit names.”

Measuring shares by value momentum has been round a very long time: many ETFs that already do this. The most important, iShares Momentum ETF (MTUM), selects shares based mostly on value appreciation over 6- and 12-month durations and low volatility over the previous three years.

However measuring momentum based mostly on social media hype has not been round that lengthy. The index BUZZ is constructed on has been dwell solely since December, 2015.

Clever says the index has outperformed the S&P 500 in 4 of the final 5 calendar years.

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

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

 Supply: Buzz Holdings

A lot of that outperformance got here in 2020. Clever says that’s not an accident: social media has exploded within the final yr and a half, corresponding with that outperformance.

“This reveals that sentiment momentum has outperformed value momentum and market cap momentum,” within the final 5 years, Clever instructed me.

Chat rooms are stuffed with traders with many various motives, together with some probably attempting to control shares. 

Clever says the index’s deal with shares with a market capitalization of greater than $5 billion helps scale back the possibilities that shares within the index could possibly be manipulated. “The market cap measurement and quantity of discussions going down round these firms makes them troublesome targets for manipulation by any dangerous actors,” states a FAQ sheeted offered by Van Eck states.

Web celeb and blogger Dave Portnoy is a component proprietor of Buzz Holdings, which owns the index the ETF relies on.

For some ETF watchers, that’s problematic: “We’ve the proprietor of an index firm hyping an index who’s himself the topic of the index,” Dave Nadig, Director of Analysis at ETF Tendencies, instructed me.  “The purpose of the index is to seek out shares who’re hyped, however Portnoy is the one who’s hyping the shares.  He’s the topic of his personal methodology.”

It highlights the “corridor of mirrors” facet of social media gazing at itself, Nadig says:  “Is social media knowledge value analyzing?  Sure. The however is, the self-referential high quality of social media — they know they’re being watched,” so it is not clear how a lot long-term worth is being extracted.

Clever declined to reveal how a lot of Buzz Media Portnoy owns, however insisted that Portnoy was merely a catalyst for a dialog:  “He is not right here to direct folks on what to spend money on.  When Dave says he likes Shopify, a complete lot of individuals begin speaking about it. The neighborhood might agree or disagree. Are they nonetheless speaking about it two weeks later?  We’re measuring whether or not it is nonetheless an ongoing matter. Simply because Dave says, ‘I like Shopify,’ it does not imply it is going within the index.”

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