If you thought an ETF made up of the most massive stocks, determined by social media talks, seemed like the natural conclusion to the roller coaster ride powered by Reddit in late January for the stock market, you were right.
On Thursday, asset manager VanEck will launch the VanEck Vectors Social Sentiment ETF, which offers exposure to equities with “the sentiment and perception of the most bullish investors”. On Tuesday, however, VanEck’s plans to deploy the fund in a standard orderly manner fell victim to the 2021 curse.
Dave Portnoy, founder of Barstool Sports and self-proclaimed king of the retail boom, tweeted a video made with an “emergency press conference” drawn up to debut the ETF.
Portnoy is a shareholder in the company that created the index underlying the fund, a VanEck spokesman confirmed, although the company did not answer any questions about whether or not it had a role at the organized press conference.
More to the point, the trick was also an awkward reminder that one man’s meta meme can be another’s market manipulator.
“This is more blurry than anything else I can think of in terms of who Portnoy is and how he will influence what will drive the components of the index by the actions he talks about on social media,” said Todd Rosenbluth, head of ETF and mutuality – fundraising research for CFRA. “To be clear, I understand that companies will incorporate the index based on several factors.”
“The product is a little amazing,” said Tyler Gellasch, CEO of Healthy Markets. Gellasch believes the ETF “appears to be capitalizing on what the SEC and FINRA could very well determine as market manipulation,” he said in an interview.
“People who can directly influence the value of individual titles are involved in the product offering. Think about all the possible conflicts of interest and self-operations you might have, such as possible front-running. Your own Twitter feeds, their own public statements could change the value of the underlying securities and affect the underlying portfolio. “
VanEck also did not immediately respond to these concerns.
Related: Are ETFs safe … for retail investors?
Speaking to MarketWatch on the same day that Gary Gensler, President-elect Joe Biden for the presidency of the Securities and Exchange Commission, asked questions to the Senate Banking Committee, including many on GameStop GME,
Commercial saga, Gellasch noted that many members of the regulatory community had indicated that these activities “justified control.”
As for the merits of the new ETF, “there is an investment case around using sentiment to select stocks,” Rosenbluth said. “I think the ETF will get attention not only because of Portnoy’s name, but because for everyone who sat on the sidelines and saw GameStop fashion, this is a safer way to get involved. It will diversify, including some undervalued stocks that could change and some that have fundamental business cases. “
The fund’s holdings are primarily large-cap companies such as Twitter Inc., TWTR,
Facebook Inc. FB,
and Amazon.com Inc. AMZN,
There are also many brands of the moment loved by retailers, such as Draftkings Inc. DKNG,
Tesla, TSLA,
and Penn National Gaming PENN,
owner of a piece of Barstool Sports that Portnoy is known for buying.
But there are also many chips from the old economy, such as Exxon Mobil Corp. XOM,
and BlackRock Inc. BLK,
Perhaps ironically, the fund is expected to rebalance once a month, which is common compared to most ETFs, Rosenbluth noted, but perhaps too rarely to capture massive movements in popular stocks.
“Is it a good or bad thing?” He asked rhetorically.
“It doesn’t help investors, companies, or really anyone in the capital markets if we continue to see companies’ stock prices completely disconnect from their core values, ”Gellasch said. “Our capital markets exist to channel investor money into good companies that do good and grow our economy. When stock prices have nothing to do with this fundamental purpose, everything breaks down. These things seem like fun, like lottery bets, but there are real companies and jobs and retirement savings at the other end. ”
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