Companies that benefit/suffer from being tagged as ‘meme stocks’ could be given a further boost with the launch of a new exchange-traded fund (ETF) this week.
The VanEck Vectors Social Sentiment ETF seeks to track the performance of the top 75 most buzzy companies on the internet.
It will do this, says VanEck Associates, by tracking the BUZZ NextGen AI US Sentiment Leaders Index, which consists of the most-favourably talked about stocks online, whether on blogs, social media or forums such as Reddit.
Companies must have a market cap of at least US$5bn.
Dave Portnoy, known as founder of Barstool Sports and for his pumping of many meme stocks on Twitter, announced the launch overnight by tweet.
He is a part-owner of the Buzz Holdings Inc business which licences the index to VanEck, with claims that the index used artificial intelligence (AI) and natural language processing (NLP) algorithms to pick 75 large cap US stocks which show “the most positive investor sentiment according to our analytics models”.
“If you thought the meme stock craze was going away, think again,” said market analyst Neil Wilson at Markets.com.
He noted that in the BUZZ index guidelines document, rather than AI and NLP, the owners say that “a committee composed of staff from Buzz Indexes Inc. is responsible for decisions regarding the composition of the BUZZ NextGen AI US Sentiment Leaders Index as well as any amendments to the rules”.
“So, there are clever AI algos at work, that I have no doubt, but the ETF doesn’t auto-rebalance based on that machine learning, it simply gives Portnoy and co some data to consider (or ignore, as they see fit) when deciding which of their meme stocks they want to pump add to their ETF,” said Wilson.
The BUZZ committee will also decide about the future composition of the index “if any extraordinary events should occur and the implementation of any necessary adjustments”.
This, Wilson added, “looks like it could be a very lumpy mixed bag of stocks with no correlation to each other except Reddit mentions. But as we have seen, on a short-term basis Reddit mentions is delivery alpha.”