ETF “Buzz” that tracks social media sentiment launches Thursday amid Reddit stock craze

Is it time for an ETF to measure the hype?

Measuring the buzz around the actions mentioned on social media is in vogue. Now there is a changed fund for that.

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

It’s essentially a momentum index, but instead of tracking stocks that evolve according to price, BUZZ tracks stocks that are getting a lot of publicity on social media.

The ETF is based on Buzz NextGen AI’s U.S. sentiment leaders index. What appears in the index is based on an initial list of shares that meet two criteria: a minimum market capitalization of $ 5 billion and that receive consistent and diverse mentions on social media over the past year. There are 250-350 shares that meet these initial criteria and, each month, are ranked from highest to lowest sentiment, with the top 75 in the index.

If you’re looking for something that captures the feeling of Reddit around small actions like GameStop, it might disappoint you.

“It’s not a Reddit memory ETF,” Jamie Wise, CEO of Buzz Holdings and creator of the index, tells me. “This is the broadest conversation around the actions mentioned on social media platforms. We are using broad social media sources, mainly Twitter and StockTwits.” Scholars say they also use Yahoo Finance, Benzinga and Reddit.

How can you determine the “social media buzz?” Wise says the index uses natural language algorithms that examine whether the comment is positive, negative, or neutral, and then classifies each value according to the degree of positive sentiment and the breadth of the discussion. This is key to understanding the index: stocks are weighted by sentiment, not by market capitalization, and no stock can exceed 3% of the index. It rebalances every month.

“We’re aggregating the collective feeling of the community” commenting on the actions on social media, Wise told me.

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

Wise says the index’s stock is proof that they’re not chasing Reddit’s latest fad: “They’re not the kind of actions celebrities are promoting. They’re everyday actions promoted by people with a wide variety of views. and does not focus on a narrow group of Reddit names “.

Measuring stocks by price momentum has been around for a long time – many ETFs already do. The largest ETF, iShares Momentum (MTUM), selects stocks based on price appreciation over 6 and 12 month periods and the low volatility of the last three years.

But the measure of momentum based on the hype of social media has not been that long. The constructed BUZZ index has only been published since December 2015.

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

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

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

Source: Buzz Holdings

Much of this overtaking came in 2020. Wise says it’s not an accident: social media has exploded over the past year and a half, corresponding to that overtaking.

“This shows that sentiment momentum has outpaced price momentum and market capitalization momentum,” Wise told me over the past five years.

Chat rooms are full of investors for many different reasons, including some who are probably trying to manipulate stocks.

Wise says the focus of the index on stocks with a market capitalization in excess of $ 5 billion helps reduce the chances that index stocks could be manipulated. “The size of the market capitalization and the volume of discussions that take place around these companies makes them difficult targets for the manipulation of any bad player,” states a frequently asked question sheet provided by Van Eck.

Famous internet blogger Dave Portnoy is a partial owner of Buzz Holdings, the owner of the index on which the ETF is based.

For some ETF observers, this is problematic: “We have the owner of an index company doing a hyping of an index that is itself the subject of the index,” Dave Nadig, Director of Research, told me of ETF Trends. “The goal of the index is to find actions that are published, but Portnoy is the one who does the actions. It’s the subject of his own methodology.”

Highlights the “living room of the mirrors” aspect of social networks that contemplate themselves, says Nadig: “Is it worth analyzing the data of social networks? Yes. The self-referential quality of social networks is that they know that they are watching “. therefore, it is not clear how much long-term value is extracted.

Wise declined to disclose the amount of Buzz Media Portnoy owns, but insisted Portnoy was simply a catalyst for a conversation: “He’s not here to direct people to invest in. When Dave tells him he likes Shopify , a lot of people start the community may agree or disagree.Do they still talk about it two weeks later? We’re measuring whether it’s still an ongoing issue.Just just because Dave says, “I like Shopify,” doesn’t mean it works in the index. “

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