The ETF ‘Buzz’ tracking conversations on social media is launched amid Reddit’s craze in stocks

Is it time for an ETF that measures hype?

Measuring the buzz around the actions mentioned on social media is in vogue. Now, there is an exchange-traded fund for this.

Van Eck Vectors Social Sentiment ETF (BUZZ) selects 75 stocks with the most optimistic social media sentiment and packs them into an ETF.

This is essentially a momentum index, but instead of tracking stocks that are changing prices, BUZZ tracks stocks that are getting a lot of hype from social media.

The ETF is based on the Buzz NextGen AI US Sentiment Leaders Index. What goes in the index is based on an initial list of stocks that meet two criteria: those with a minimum market capitalization of $ 5 billion and getting consistent and diverse mentions on social media over the past year. The 250-350 shares that meet this initial criterion are ranked each month, from the highest to the lowest opinion, with the top 75 going to the index.

If you are looking for something that captures the Reddit feeling around small actions like GameStop, you may be disappointed.

“This is not a Reddit meme stock ETF,” said Jamie Wise, CEO of Buzz Holdings and creator of the index. “This is a broader conversation about actions mentioned on social media platforms. We are using extensive sources of social media, mainly Twitter and StockTwits.” Wise said he also uses Yahoo Finance, Benzinga and Reddit.

How to determine the “social media buzz?” Wise says the index uses natural language algorithms that examine whether the comment is positive, negative or neutral and then rates each action based on the degree of positive feeling and the breadth of the discussion. This is the key to understanding the index: stocks are weighted by sentiment, not market capitalization, and no stock can exceed 3% of the index. It is rebalanced every month.

“We are adding the collective feeling of the community” that comments on social media actions, said Wise.

Initially, the biggest holdings include Twitter, DraftKings, Ford, American Airlines and Facebook. Tesla is number 10. The $ 5 billion minimum market capitalization criterion would exclude Reddit names like Gamestop, Express or AMC Entertainment from the mix.

Wise says the index’s shares are proof that they are not chasing Reddit’s latest craze. “This is not the kind of actions that are being promoted by celebrities,” said Wise. “These are day-to-day actions promoted by people with a wide variety of views and are not focused on a restricted group of Reddit names.”

Measuring stocks by the price boost has been around for a long time, and many ETFs already do that. The largest, iShares Momentum ETF (MTUM), selects stocks based on price appreciation in periods of six and 12 months and low volatility in the last three years.

Measuring momentum based on social media hype hasn’t been around for a long time. The BUZZ index is built has been active only since December 2015.

Wise says the index has surpassed the S&P 500 in four of the past five calendar years.

BUZZ vs. Momentum (from the beginning: 12/18/15)

• BUZZ Index: increase of 215%
• Momentum ETF (MTUM) up to 119%
• S&P 500: up 113%

Source: Buzz Holdings

Much of that top performance came in 2020. Wise says it is not an accident because social media has exploded in the past year and a half, corresponding to that top performance.

“It shows that the dynamics of sentiment have outpaced the dynamics of prices and market capitalization” over the past five years, said Wise.

The chat rooms are full of investors with many different reasons, including some likely trying to manipulate stocks.

Wise says the index’s focus on stocks with a market capitalization of more than $ 5 billion helps reduce the chances of the index’s stocks being manipulated. “The size of market capitalization and the volume of discussions around these companies make them difficult targets for any wrongdoer to manipulate,” says a sheet of frequently asked questions provided by Van Eck.

Internet celebrity and blogger Dave Portnoy is a co-owner of Buzz Holdings, which owns the index on which the ETF is based.

For some ETF observers, this is problematic: “We have the owner of an index company promoting an index that is itself the object of the index,” said Dave Nadig, research director at ETF Trends. “The objective of the index is to find stocks that are being exaggerated, but Portnoy is the one that is exaggerating. He is the subject of his own methodology.”

He highlights the “hall of mirrors” aspect of social media looking at itself, Nadig added: “Is it worth analyzing social media data? Yes. But it is, the self-referential quality of social media – they know they are being watched” therefore it is not clear how much long-term value is being extracted.

Wise declined to disclose how much of Buzz Media Portnoy owns, but insisted that Portnoy was simply a catalyst for conversation. “He is not here to advise people on what to invest in,” said Wise. “When Dave says he likes Shopify, a lot of people start talking about it. The community can agree or disagree. Are they still talking about it two weeks later? We are measuring whether it is still an ongoing topic. Just because Dave said, ‘I like Shopify’, it doesn’t mean it goes to the index. “

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