Is it time for an ETF that measures hype?

Measuring the buzz around stocks mentioned in social media is all the rage.  Now there’s an exchange-traded fund for that.

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

This is essentially a momentum index, but instead of tracking stocks that are moving on price, BUZZ tracks stocks that are getting a lot of social media hype.

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

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,” Jamie Wise, CEO of Buzz Holdings and the originator of the index, tells me. “This is about the broader conversation around stocks mentioned on social media platforms.  We are using broad social media sources, principally Twitter and StockTwits.”  Wise say they also use Yahoo Finance, Benzinga, and Reddit as well.

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

“We are aggregating the collective sentiment of the community” that comments on stocks on social media, Wise told me.

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

Wise says the stocks in the index are proof they are not chasing the latest Reddit craze: “These are not the kind of stocks that are being promoted by celebrities. These are everyday stocks being promoted by people with a wide variety of viewpoints, and is not focused on a narrow group of Reddit names.”

Measuring stocks by price momentum has been around a long time: many ETFs that already do that. The largest, 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 has not been around that long. The index BUZZ is built on has been live only since December, 2015.

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

BUZZ vs. Momentum (since inception: 12/18/15)

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

 Source: Buzz Holdings

Much of that outperformance came in 2020. Wise says that is not an accident: social media has exploded in the last year and a half, corresponding with that outperformance.

“This shows that sentiment momentum has outperformed price momentum and market cap momentum,” in the last five years, Wise told me.

Chat rooms are full of investors with many different motives, 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 that stocks in the index could be manipulated. ”The market cap size and volume of discussions taking place around these companies makes them difficult targets for manipulation by any bad actors,” states a FAQ sheeted provided by Van Eck states.

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

For some ETF watchers, that is problematic: ”We have the owner of an index company hyping an index who is himself the subject of the index,” Dave Nadig, Director of Research at ETF Trends, told me.  “The point of the index is to find stocks who are hyped, but Portnoy is the one who is hyping the stocks.  He is the subject of his own methodology.”

It highlights the “hall of mirrors” aspect of social media gazing at itself, Nadig says:  “Is social media data worth analyzing?  Yes. The but is, the self-referential quality of social media — they know they are being watched,” so it’s 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 a conversation:  “He’s not here to direct people on what to invest in.  When Dave says he likes Shopify, a whole lot of people start talking about it. The community may agree or disagree. Are they still talking about it two weeks later?  We’re measuring whether it’s still an ongoing topic. Just because Dave says, ‘I like Shopify,’ it doesn’t mean it’s going in the index.”

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