‘Buzz’ ETF tracking of social media conversations unveiled amid Reddit mania in equities

Is it time for an ETF that measures hype?

It’s all the rage to measure the buzz around stocks mentioned on social media. There is now an exchange traded fund for it.

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

It’s essentially a momentum index, but instead of keeping stocks up, BUZZ is watching stocks that get a lot of social media hype.

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 stocks that meet two criteria: those with a minimum market capitalization of $ 5 billion and consistent and diverse social media listings over the past year. The 250-350 stocks that meet the initial criteria are ranked each month from the highest sentiment to the lowest, with the 75 best in the index.

If you’re looking for something that catches the Reddit sentiment around small stocks like GameStop, you may be disappointed.

“This is not an ETF of Reddit shares,” said Jamie Wise, CEO of Buzz Holdings and the source of the index. “It’s about the broader conversation about shares mentioned on social media platforms. We use broad social media sources, mainly Twitter and StockTwits.” Wise said it also uses Yahoo Finance, Benzinga and Reddit.

How do 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 rank each stock based on the degree of positive sentiment and breadth of 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 is rebalanced every month.

“We gather the collective sentiment of the community” commenting on shares on social media, Wise told me.

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

Wise says the shares in the index are proof that they are not chasing the latest Reddit fad: “These are not the kind of stocks promoted by celebrities. They are everyday stocks promoted by people with a wide range of views and it’s not focused on a narrow group of Reddit names. ‘

The stock of the stocks according to the price moment has been around for a long time: many ETFs already do. The largest, iShares Momentum ETF (MTUM), selects equities based on price increases over 6- and 12-month periods and low volatility over the past three years.

But the momentum measurement based on social media hype hasn’t been around 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 past five calendar years.

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

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

Source: Buzz Holdings

Many of the better performances took place in 2020. Wise says this is not an accident: social media has exploded over the past year and a half, consistent with better performance.

“It shows that the momentum of the price is performing better than the momentum of the market and the market capitalization,” Wise told me over the past five years.

Chat rooms are full of investors with many different motives, including some who are probably trying to manipulate stocks.

Wise says the index’s focus on stocks with a market capitalization of more than $ 5 billion helps reduce the chance that stocks in the index could be manipulated. “The scale of market capitalization and the amount of discussions taking place around these companies make them difficult targets for manipulation by bad actors,” reads a questionnaire provided by Van Eck.

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

For some ETF viewers, this is problematic: “We have the owner of an index-linked index-linked company,” Dave Nadig, director of research at ETF Trends, told me. “The point of the index is to find stocks that are subject, but Portnoy is the one who devises the stocks. He is the subject of his own methodology.”

It emphasizes the aspect of the “hall of mirror” of social media that looks at itself, Nadig says: “Is social media data worth analyzing? Yes. But the self-referential quality of social media is important – they know that being looked at, “so it’s not clear how much value is gained in the long run.

Wise did not want to disclose how much of Buzz Media Portnoy owns, but insisted that Portnoy was merely a catalyst for a conversation: ‘He’s not here to show people what to invest in. When Dave says he likes Shopify, a lot of people start talking about it. The community may or may not agree. Are they still talking about it two weeks later? We measure whether it is still an ongoing topic. Just because Dave says ‘I like Shopify’ does not mean it’s going. in the index. “

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