Lately, traders and investors have become very active on social media platforms. Investors aren't just involved in discussing stocks and strategies. They have evolved to joining forces and buying some stocks in unison, which leads to a price spike in that stock. The Reddit group WallStreetBets is a prime example. GameStop and AMC are some of the stocks that have gained from this trend.
Now, an ETF is coming that seeks to take advantage of tracking mentions of stocks on the internet. The VanEck Vectors Social Sentiment ETF (BUZZ) will use an algorithm to track social buzz on the top 75 large-cap stocks each month. The index will rebalance monthly. Since the top stocks will keep changing, so will the fund’s positions. Therefore, the fund will be an actively managed ETF. How can investors buy the BUZZ ETF?
Who is Dave Portnoy?
Dave Portnoy is the founder of the popular sports and pop culture website, Barstool Sports. He also founded Davey Day Trader Global (DDTG ), which is a YouTube channel that he uses to live-stream his market sentiment and trades online. On March 2, he announced the launch of the BUZZ ETF through a video press conference on Twitter. He promoted the fund saying that the ETF is something “that I am part of, that I am putting my face behind, my reputation behind.” While Portnoy isn't launching the ETF himself, he is a shareholder in the company that created the index that underlies the fund.
BUZZ ETF's launch date
The VanEck Vectors Social Sentiment ETF will be available on March 4. It will start trading on the NYSE under the ticker symbol “BUZZ.” The ETF will track the BUZZ NextGen AI US Sentiment Leaders Index. The ETF is aptly named for the stocks that it will be tracking.
BUZZ ETF's top holdings
The BUZZ ETF will invest in the top 75 large-cap stocks that are getting the most positive sentiment on the internet and social media. The fund will hold stocks with market capitalizations of over $5 billion. The index behind the ETF will monitor over 15 million online posts every month through the use of artificial intelligence. The belief behind the ETF is that it can capture the sentiment to create alpha for investors. Online investor sentiment regarding a stock has been one of the key drivers behind stock price movements lately, namely GameStop and AMC.
According to The Street, the fund's underlying index has been around for several years. It mainly consists of five sectors—tech, consumer discretionary, communication services, healthcare, and industrials. Only about 10 percent of the assets come from outside these five sectors. Currently, the index’s top holdings include Draftkings (3.43 percent), Twitter (3.41 percent), Ford Motor (3.35 percent), Facebook (2.99 percent), and Amazon (2.96 percent).
BUZZ ETF's price
The Buzz ETF will have an expense ratio of 0.75 percent and its underlying index will rebalance monthly.
Investors have questions about the BUZZ ETF
Usually, before a fund actually launches, there are a lot of backtests conducted to see if the fund’s strategy would have worked and outperformed the benchmarks historically. Since the BUZZ NextGen AI US Sentiment Leaders Index launched five years ago, it has returned nearly 27 percent on an annual basis and has outperformed the S&P 500.
Currently, retail investors are looking for stock ideas that have been favored positively by users on Reddit, Twitter, and Stocktwits. Investors also want to get into the stocks that most investors are getting into. The Buzz ETF will give them exactly that.
On the flip side, since the fund seeks to capitalize on the market buzz around some stocks, it could get into legal issues for market manipulation. The executive director of Healthy Markets, Tyler Gellasch, said as the ETF “appears to be capitalizing on what could very well be determined by SEC and FINRA to be market manipulation.”
The product has the potential to create alpha since it will focus on the large-cap stocks that have positive commentary surrounding them, which will be for a reason. However, there are a lot of unanswered questions about the fund, which could create potential difficulties for it down the line.
How to buy the BUZZ ETF
Like investing in any other ETF, you should have a brokerage account for holding ETF units. Most of the online brokers now offer commission-free stock and ETF trades. After the completion of all the formalities, you can buy and sell ETFs through your account.
While ETFs don’t have minimum investment requirements like mutual funds, they trade on a per-share basis. So, unless your broker offers you the facility of buying a fractional stock, you should buy at least the current price of one share.