The VanEck Vectors Social Sentiment ETF (BUZZ) debuted on the market on March 4. The fund, managed by VanEck Associates Corp., seeks to replicate the performance of the BUZZ index (the Buzz NextGen AI U.S. Sentiment Leaders Index), which tracks dozens of large-cap stocks that are popular on social media. Should you buy the BUZZ ETF?
The index underlying the BUZZ fund, which features 75 stocks, is adjusted every three months. At that time, some stocks can be added or removed. A company must have a market cap of at least $5 billion to be eligible for inclusion in the index. Meanwhile, the BUZZ ETF will rebalance its portfolio every month to better align with social media trends. CNBC’s Mad Money host Jim Cramer, who coined the "FAANG" acronym for America’s hot tech stocks, called the BUZZ ETF fascinating.
BUZZ ETF's top holdings and their performance
The top five holdings of the BUZZ ETF are Ford Motor (F), Draftkings (DKNG), Twitter (TWTR), Facebook (FB), and American Airlines Group (AAL). The stocks have gained 69 percent, 231 percent, 85 percent, 34 percent, and 15 percent in the past 12 months, respectively. The fund's other big holdings are Tesla, Amazon, and Apple.
How the BUZZ ETF picks stocks
Investors seeking hot stocks usually follow discussions on platforms like Reddit, Stocktwits, TikTok, and Twitter. The GameStop frenzy that sent many heavily shorted stocks soaring despite their weak fundamentals had its roots on Reddit community WallStreetBets.
However, the BUZZ fund intends to leave Reddit chatters out of the picture when making investment decisions. It will mainly focus on conversations on more mainstream platforms like Stocktwits and Twitter.
The index that the BUZZ ETF tracks uses artificial intelligence to analyze millions of social media posts about stocks every month. It focuses on stocks with the most favorable mentions. The fund will only invest in stocks whose value it thinks will rise over time, which means that it doesn't plan to engage in short-selling.
Is Dave Portnoy-backed BUZZ ETF a speculative investment?
The index underlying the BUZZ fund has gained about 80 percent in the past 12 months and beat the S&P 500’s 25 percent return during the same period. Moreover, the buzzy index has outperformed the S&P 500 in all but one of the last five years. The BUZZ ETF aims to take the guesswork out of its investment decisions by tracking positive social media conversations to identify stocks that could rise.
Barstool boss and day trader Dave Portnoy is an investor in the underlying index. He encouraged investors to buy the BUZZ ETF launch in a tweet.
Should you buy BUZZ ETF?
The fund might appeal to investors seeking exposure to potential meme stocks like GameStop but lack the time to comp the social media world for the right picks. Also, index ETFs naturally come with built-in portfolio diversity, which minimizes the risks for investors. Although Warren Buffett has warned against bond investing, he encourages retail investors to put their money in index funds instead of trying to chase individual stocks.
BUZZ ETF compared to Cathie Wood’s ARKK ETF
The BUZZ ETF’s underlying index and Cathie Wood’s Ark Innovation ETF (ARKK) have a history of outperforming the S&P 500. Investors greeted the BUZZ ETF with caution on the first trading day. The rough beginning could mean a good ending for investors in the brand new meme stock fund.
The ARKK ETF has been struggling for a while. It kicked off 2021 roaring with its gains for the year at some point nearly 30 percent. However, a string of sell-offs in some of its major stocks like Tesla (TSLA), Zillow (ZG), and Pinterest (PINS) all but wiped out its YTD gains. ARKK’s decline comes as investors have tried to shy away from some of the recently hot tech stocks amid rising U.S. Treasury yields.