If you thought that an ETF made up of the busiest stocks, as determined by social media conversations, looked like the natural conclusion of the roller coaster fueled by Reddit in late January by the stock market, you were right.
On Thursday, asset manager VanEck will launch the ETF VanEck Vectors Social Sentiment, which offers exposure to stocks with “the most optimistic investor sentiment and perception”. On Tuesday, however, VanEck’s plans to launch the fund in the standard orderly manner fell victim to the 2021 curse.
Dave Portnoy, founder of Barstool Sports and self-proclaimed king of the retail boom, tweeted an elaborate video of an “emergency press conference” to debut the ETF.
Portnoy is a shareholder in the company that created the index underlying the fund, confirmed a spokesman for VanEck, although the company did not answer a question about whether or not it participated in the staged press conference.
More specifically, the feat was also an uncomfortable reminder that one man’s meta-meme may be another’s market manipulator.
“This is more blurry than anything I can imagine in terms of who Portnoy is and how what drives the index’s constituents will be affected by the actions he talks about on social media,” said Todd Rosenbluth, head of ETF and mutual – fundraising for CFRA. “To be clear, my understanding is that companies will enter the index based on a variety of factors.”
“The product is a bit mind-boggling,” said Tyler Gellasch, executive director of Healthy Markets. Gellasch thinks the ETF “appears to be capitalizing on what could very well be determined by the SEC and FINRA as market manipulation,” he said in an interview.
“People who can have a direct influence on the value of individual securities are involved in offering the product. Think of all the potential conflicts of interest and self-sufficiency that you could have, things like the potential front-running. Your own Twitter feeds, your own public statements can change the value of the underlying securities and impact 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, chosen by President Joe Biden as chairman of the Securities and Exchange Commission, answered questions from the Senate Banking Committee, including many about the GME GameStop,
Commercial saga, Gellasch noted that many in the regulatory community indicated that such activities “deserved scrutiny”.
As for the merits of the new ETF, “there is an investment case around using sentiment to select stocks,” said Rosenbluth. “I think the ETF is going to gain attention not just because of Portnoy’s name, but because for everyone who was left out and watched the GameStop madness, this is a safer way to participate. It will be diversified, including some stocks that are undervalued that can recover and some that have fundamental business cases. “
The fund’s holdings are primarily large-cap growth companies such as Twitter Inc., TWTR,
Facebook Inc. FB,
and Amazon.com Inc. AMZN,
There are also many current brands loved by retailers, such as Draftkings Inc. DKNG,
Tesla, TSLA,
and Penn National Gaming PENN,
co-owner of Barstool Sports, which Portnoy is known to buy.
But there are also plenty of blue chips from the old economy, like Exxon Mobil Corp. XOM,
and BlackRock Inc. BLK,
Perhaps ironically, the fund is expected to rebalance once a month, which is frequent compared to most ETFs, noted Rosenbluth, but perhaps infrequently to capture massive movements in popular stocks.
“This is good or bad?” he asked rhetorically.
“It does not help investors, companies or really anyone in the capital market if we continue to see companies’ stock prices being completely disconnected from their core values,” said Gellasch. “Our capital markets exist to channel investors’ money into good companies that do good and grow our economy. When stock prices are unrelated to this fundamental purpose, everything breaks down. These things look like fun, like lottery-style gambling, but there are real companies, jobs and retirement savings on the other side.
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