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Time for an ETF to measure hype?
Measuring the buzz around the actions mentioned on social media is in fashion. Now, there is an exchange-traded fund for that.
The Van Eck vectors (BUZZ) social sentiment ETF selects 75 stocks with the most optimistic sentiment on social media and packages them into one ETF.
This is essentially a momentum index, but instead of tracking stocks that are moving in price, BUZZ tracks stocks that are getting a lot of publicity on social media.
The ETF is based on Buzz NextGen AI’s US Sentiment Leader Index. What appears 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 earning consistent and diverse mentions on social media over the past year. The 250-350 stocks that meet the initial criteria are ranked each month from highest sentiment to lowest, with the top 75 in the index.
Not a Reddit Meme Stock ETF
If you’re looking for something that captures Reddit sentiment around small stocks like GameStop, you might be disappointed.
“This is not a Reddit meme stock ETF,” said Jamie Wise, CEO of Buzz Holdings and creator of the index. “This is the broader conversation about the mentioned stocks on social media platforms. We are using extensive social media sources, primarily Twitter and StockTwits.” Wise said he also uses Yahoo Finance, Benzinga, and Reddit.
How to determine the “buzz of social networks”? Wise says the index uses natural language algorithms that examine whether the comment is positive, negative, or neutral, then ranks each action based on the degree of positive sentiment and the breadth of the discussion. That’s key to understanding the index – stocks are weighted by sentiment, not market capitalization, and no stocks can exceed 3% of the index. It rebalances itself every month.
“We’re adding the collective sentiment of the community” commenting on the actions on social media, Wise told me.
The largest holdings initially include Twitter, DraftKings, Ford, American Airlines, and Facebook. Tesla is number 10. The minimum market capitalization criterion of $ 5 billion would exclude Reddit names like Gamestop, Express or AMC Entertainment from the mix.
Wise says the stocks on the index are proof that they are not chasing Reddit’s latest craze: “These are not the kinds of stocks celebrities are promoting. They are everyday stocks promoted by people with a wide variety of views. , and it’s not focused on a small group of Reddit names. “
Is the popularity of social media a good way to choose actions?
Measuring stocks by price momentum has been around for a long time – many ETFs already do it. The largest ETF, iShares Momentum ETF (MTUM), selects stocks based on price appreciation over 6 and 12 month periods and low volatility over the past three years.
But measuring momentum based on social media hype hasn’t been around for that long. The index on which BUZZ is based has only been active since December 2015.
Wise says the index has outperformed the S&P 500 in four of the last five calendar years.
BUZZ vs. Momentum (from start: 12/18/15)
- BUZZ index: 215% increase
- Momentum ETF (MTUM) up to 119%
- S&P 500: 113% more
Source: Buzz Holdings
Much of that outperformance came in 2020. Wise says it’s no accident – social media has exploded in the last year and a half, corresponding to that outperformance.
“This shows that the momentum in sentiment has outpaced the momentum in prices and the momentum in market capitalization” in the last five years, Wise told me.
Can actions on social networks be manipulated?
Chat rooms are full of investors with many different motives, including some who are probably trying to manipulate stocks.
Wise says that the index’s focus on stocks with a market capitalization of more than $ 5 billion helps reduce the chances that stocks in the index can be manipulated. “The size of the market capitalization and the volume of discussions taking place around these companies make them difficult targets for manipulation by the bad guys,” states an FAQ sheet 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 watchers, that’s problematic: “We have an index company owner promoting an index who is himself the subject of the index,” Dave Nadig, research director at ETF Trends, told me. “The goal of the index is to find stocks that are promoting, but Portnoy is the one promoting the stocks. He is the subject of his own methodology.”
The “hall of mirrors” aspect of social networks that look at themselves stands out, says Nadig: “Is it worth analyzing data from social networks? Yes. The but is, the self-referential quality of social networks : they know they are being watched. ” so it is unclear how much long-term value is being extracted.
Wise declined to reveal how much of Buzz Media Portnoy owns, but insisted that Portnoy was simply a catalyst for a conversation: “He’s not here to guide people on what to invest in. When Dave says he likes Shopify, a lot of people start. The community can agree or disagree. Are they still talking about it two weeks later? We’re measuring if it’s still an ongoing topic. Just because Dave says “I like Shopify” doesn’t mean it’s in the index. “
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