The “Buzz” ETF that follows the social media sentiment is launched on Thursday amid Reddit mania in shares

Is it time for an ETF that measures hype?

Measuring the buzz around the actions mentioned on social media is fashionable. There is now a traded fund for this.

The Van Eck Vectors Social Sentiment (BUZZ) ETF selects 75 stocks with the most optimistic social sentiment and wraps them in an ETF.

This is essentially an impulse index, but instead of tracking stocks that move based on price, BUZZ tracks stocks that get a lot of hype on social media.

The ETF is based on the Buzz NextGen AI US Sentiment Leaders Index. What appears in the index is based on an initial list of actions that meet two criteria: a minimum market capitalization of $ 5 billion and that receive consistent and diverse mentions on social networks in the last year. There are 250-350 shares that meet the initial criteria, then each month they are ranked from highest to lowest, with the top 75 moving into the index.

If you’re looking for something that captures the feeling of Reddit around small actions, such as GameStop, you might be disappointed.

“This is not a Reddit memory ETF,” says Jamie Wise, CEO of Buzz Holdings and the initiator of the index. “It’s a broader conversation about actions mentioned on social media platforms. We use broad social media sources, mainly Twitter and StockTwits.” The sages say they also use Yahoo Finance, Gasoline 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 classifies each stock based on the degree of positive sentiment and the extent of the discussion. This is the key to understanding the index: stocks are weighted by sentiment, not market capitalization, and no one can exceed 3% of the index. It rebalances every month.

“We aggregate the collective feeling of the community” that comments on stocks on social networks, Wise told me.

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

Wise says the actions in the index are proof that they are not following the latest Reddit craze: “These are not the kind of actions promoted by celebrities. These are daily actions promoted by people with a wide range of views and is not focused on a small group of Reddit names. “

Measuring stocks based on price momentum has been around for a long time: many ETFs are already doing this. The largest iShares Momentum ETF (MTUM) selects stocks based on 6- and 12-month price appreciation and low volatility over the past three years.

But the measurement of momentum based on exaggeration on social networks did not exist so much. The BUZZ-based index has only been active since December 2015.

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

BUZZ vs. Momentum (from the beginning: 18.12.15)

• BUZZ index: up 215%
• ETF Momentum (MTUM) increased 119%
• S&P 500: up 113%

Source: Buzz Holdings

Much of this performance came in 2020. Wise says it’s not an accident: social media has exploded in the last year and a half, corresponding to this performance.

“This shows that the momentum of sentiment has outpaced the momentum of prices and the momentum of market capitalization,” Wise told me over the past five years.

Chat rooms are full of investors for many different reasons, including some who are probably trying to manipulate actions.

Wise says concentrating the index on stocks with a market capitalization of more than $ 5 billion helps reduce the chances that the shares in the index can be manipulated. “The size of the market cap and the volume of discussions that take place around these companies make them difficult targets for any bad actor to handle,” says a frequently asked question sheet provided by Van Eck.

Celebrity and internet blogger Dave Portnoy is the partial 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 who is hyping an index that is itself the subject of the index,” Dave Nadig, research director at ETF Trends, told me. “The purpose of the index is to find stocks that are hyped, but Portnoy is the one that is hyping stocks. It is the subject of its own methodology.”

He highlights the “mirror room” aspect of social media that looks at itself, Nadig says: “Is it worth analyzing data from social networks? Yes. But it is the self-referential quality of social networks – I know that they are followed ”. so it is not clear how much long-term value is extracted.

Wise declined to disclose how much Buzz Media Portnoy owns, but insisted Portnoy was simply a catalyst for a conversation: “He’s not here to direct people to invest. When Dave says he likes Shopify “A lot of people start the community. They might or might not agree. I’ll talk about that two more weeks later. Let’s see if it’s still an ongoing topic. Just because Dave says ‘I like Shopify.’ , does not mean it goes in the index. “

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