Whenever Wall Street discovers a new pathway to making money, it's fun to watch the ensuing weeks and months as new products and services, tailored to whatever fad is popular that week, pop up like weeds.
Such has been the case with WallStreetBets over the last several weeks. As the subreddit has been launched into the spotlight, movie deals and new financial products have been dutifully popping up left and right. The latest of these derivatives has been VanEck's new "Social Media Sentiment" ETF, which will invest in stocks that are "being talked up on social media", according to the Financial Times.
The ETF is a revival of a former fund, the Sprott Buzz Social Media Insights ETF, which "fell out of orbit" in 2019, according to FT. It had averaged just $9 million in assets during its lifetime. That ETF drew from the Buzz NextGen AI US Sentiment Leaders Index, which the new VanEck product will also draw from. Despite this, the Buzz index outperformed the S&P 500 by about 10%.
Jamie Wise, chief executive of Periscope Capital that created the index said he is "excited about it being back". Periscope “didn’t have the infrastructure for marketing [so] it didn’t organically attract assets," he said. “There is much more acceptance of the idea that there is a broad investment community out there and they do have interesting things to say. We were perhaps too early.”
The index takes content from social media sites like Twitter and aggregates it - one decent explanation for all of the bot posts you might see anytime you search a cashtag on Twitter or Stocktwits. It then uses AI to try and “identify patterns, trends and changing sentiment which can affect market-based outcomes”.
The top 75 U.S. large caps creating a buzz then form the basis for the portfolio. Wise made the index because he “really wanted to know what people were saying [online] and thought there has to be some value in that. He continued: “For many years and even generations we have known that sentiment drives markets. The problem was that we could never measure it."
Wise thinks the idea could have more success today than in the past. “We think the biggest thing that has led to that outperformance is how the conversation online has grown and evolved. The more people online, the more people engaged in talking about stocks, the more confidence and breadth in the security selection of the fund," he noted.
Todd Rosenbluth, head of ETF and mutual fund research at CFRA Research, also said "this time around could be different".
Ben Johnson, director of global ETF research at Morningstar calls it an "interesting concept" that he thinks will "attract investors' attention". He also notes that the strategy still hasn't been time-tested: “Jumping on the social media sentiment bandwagon and letting that whip your portfolio around is effectively a high-octane momentum strategy and it’s a brand of momentum that’s about the worst kind, rather than more academic kind. I don’t want a brand of momentum that hasn’t been vetted and tested rigorously.”
We'll just have to see what sentiment is about the ETF going forward...