If you thought that an ETF made up of the biggest stocks, as determined by the discussions on social networks, seemed to be the natural conclusion of the ride with the roller coaster powered by Reddit at the end of January through the stock market, you had justice.
On Thursday, asset manager VanEck will launch the VanEck Vectors Social Sentiment ETF, which offers stock exposure with “the most optimistic investor sentiment and perception.” On Tuesday, however, VanEck’s plans to launch the fund in an orderly manner were victims of the 2021 curse.
Dave Portnoy, founder of Barstool Sports and self-proclaimed king of retail growth, posted an elaborate video of the “emergency press conference” to kick off the ETF.
Portnoy is a shareholder in the company that created the index behind the fund, a VanEck spokesman confirmed, although the company did not answer a question about whether or not it had a role in the press conference.
More to the point, the stunt was also an uncomfortable reminder that a man’s meta-meme can be someone else’s market manipulator.
“This is more blurred than anything I can think of as to who Portnoy is and how what will drive the components of the index will be affected by the actions he talks about on social media,” said Todd Rosenbluth, chief ETF and mutual fund research for CFRA. “To be clear, I understand that companies will be indexed based on a variety of factors.”
“The product is a little amazing,” said Tyler Gellasch, CEO of Healthy Markets. Gellasch believes that the ETF “seems to capitalize on what could very well be established 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 about all the potential conflicts of interest and self-relationships you might have, things like potential front-running. Your own Twitter feeds, your own public statements could change the value of the underlying securities and could have an impact on the underlying portfolio. ”
VanEck did not immediately respond to these concerns either.
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Speaking to MarketWatch on the same day that Gary Gensler, President Joe Biden’s election as chairman of the Securities and Exchange Commission, asked questions from the Senate Banking Committee, including many about GameStop GME,
In the trading saga, Gellasch noted that many in the regulatory community indicated that such activities “justified control.”
Regarding the merits of the new ETF, “There is a case of investment in the use of sentiment to select stocks,” said Rosenbluth. “I think the ETF will gain attention not only because of Portnoy’s name, but because for all those who stood on the sidelines and watched the madness of GameStop, this is a safer way to participate. It will be diversified, including some stocks that are undervalued and could return and some that have fundamental business cases. ”
The fund’s holdings are mainly large-cap growth companies, such as Twitter Inc., TWTR,
Facebook Inc. FB,
and Amazon.com Inc. AMZN,
There are also a lot of moment brands loved by retailers, such as Draftkings Inc. DKNG,
Tesla, TSLA,
and Penn National Gaming PENN,
a partial owner of Barstool Sports, which Portnoy is known for buying.
But there are also a lot of old chips, like Exxon Mobil Corp. XOM,
and BlackRock Inc. BLK,
Perhaps ironically, the fund is expected to rebalance once a month, which is common compared to most ETFs, Rosenbluth noted, but perhaps too rarely to capture massive movements in popular stocks.
“Is it a good thing or a bad thing?” he asked rhetorically.
“It doesn’t help investors, companies, or really anyone in the capital markets if we continue to see that the company’s stock prices are completely disconnected from their core values,” Gellasch said. “Our capital markets exist to channel investors’ money to good companies that do well and grow our economy. When stock prices have nothing to do with this fundamental purpose, everything breaks down. These things sound like fun, like lottery-style gambling, but there are real companies and jobs and retirement savings at the other end of it.
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