Measuring enthusiasm for stocks mentioned on 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 optimistic social media sentiment and packs them into an 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 social media hype

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

If you’re looking for something to capture the Reddit sentiment among small stocks like GameStop, you might find yourself disappointed

“This is not a Reddit Meme Stock ETF,” said Jamie Wise, CEO of Buzz Holdings and creator of the index, “This is about the broader conversation about stocks mentioned on social media platforms, we use widespread social media -Sources, Mainly Twitter and StockTwits, “Wise said it also uses Yahoo Finance, Benzinga and Reddit

How can you determine “social media buzz”? Wise says the index uses natural language algorithms that examine whether the comment is positive, negative, or neutral, and then ranks each stock based on the level of positive sentiment and the breadth of the discussion, which is key to understanding the index : Stocks are weighted by sentiment rather than market capitalization, and no stock can exceed 3% of the index. Rebalanced every month

“We aggregate the collective sentiment of the community” commenting on stocks on social media, said Wise

The largest holdings initially include Twitter, DraftKings, Ford, American Airlines and Facebook Tesla is number 10Â The minimum criteria for a market capitalization of 5 billion US dollars would exclude Reddit names such as Gamestop, Express or AMC Entertainment from the mix / p>

Wise says the stocks in the index prove they aren’t chasing the latest Reddit craze. “These aren’t the stocks that are being promoted by celebrities,” Wise said. “These are everyday stocks owned by people with a wide variety advertised from a point of view rather than focusing on a narrow group of Reddit names “

Measuring stocks by price momentum has been around for a long time, and many ETFs already do The largest iShares Momentum ETF (MTUM) picks stocks based on a six- and twelve-month price increase and low volatility in the past three years from

The measurement of dynamics based on the social media hype has not been around for that long. The index on which BUZZ is based has only been live since December 2015

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

Much of that outperformance came in 2020Wise says this is not an accident as social media has exploded in the past year and a half, which equates to that outperformance

“This shows that sentiment momentum has outpaced price momentum and market cap momentum over the past five years,” said Wise

Chat rooms are full of investors with many different motivations, including some who are likely to try to manipulate stocks

Wise says the index’s focus on stocks with market capitalizations greater than $ 5 billion will help reduce the chances that stocks in the index could be manipulated “The size of the market capitalization and the volume of discussions around these companies make them difficult targets for manipulation by bad actors, “says a FAQ sheet by Van Eck

Internet celebrity and blogger Dave Portnoy is a partner in Buzz Holdings, which owns the index on which the ETF is based

For some ETF watchers, this is problematic: “We have the owner of an index company that has upplayed an index that is itself the subject of the index,” said Dave Nadig, Research Director at ETF Trends. “The point of the index is Finding stocks being hyped, but Portnoy is the one who hyped the stocks. He’s the subject of his own methodology “

Nadig added, “Is social media data worth analyzing? Yes, but that’s the self-referential quality of social media? You know it’s being watched “So it’s not clear how much long-term value is extracted

Wise declined to disclose how much Buzz Media Portnoy owns, but insisted that Portnoy was merely a conversation catalyst. “He’s not here to let people know what to invest in Wise said, “When Dave says he likes Shopify, a lot of people start talking about it. The community may or may not agree. Are you still talking about it two weeks later? We’re measuring if it’s an ongoing topic Just because.” Dave says, “I like Shopify,” doesn’t that mean it’s going to be in the index “

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BUZZ

World News – USA – The ‘buzz’ ETF, which is tracking sentiment on social media, launches Thursday amid Reddit manias in stocks

Source: https://www.cnbc.com/2021/03/04/buzz-etf-tracking-social-media-sentiment-launches-thursday-amid-reddit-manias-in-stocks.html