Harnessing Social Sentiment with AI
ETFs tracking “meme” and “mania” stocks can display very different performance patterns.
Some of the highest short-term trading returns can come from trading manias, such as AI-related stocks recently in 2023. AI itself can also be used as a technique to identify positive investor sentiment, based on social media, news, blogs and other datasets.
The VanEck Social Sentiment ETF (BUZZ) tracks the BUZZ NextGen AI US Sentiment Leaders Index (BUZZTR), which picks the 75 US large cap stocks with the strongest sentiment. BUZZ monitors 15 million online posts a month to gauge sentiment.
At the end of May 2023, it is no surprise to see that the top ten holdings are nearly all perceived to be beneficiaries of AI to varying degrees: “Big Data” software group Palantir; chipmakers Nvidia and AMD; EV makers Tesla and Lucid; video streamer Netflix; and mega cap tech stocks: Microsoft, Amazon, Alphabet and Meta.
The product made 26.78% in the first five months of 2023, well ahead of the S&P 500 up 9.65%. However, on a three or five year lookback it has lagged the S&P 500 by a larger margin. The pattern of outperformance and underperformance seems to follow phases. It outperformed considerably for most of 2021, which was also a bullish period. The most fashionable “meme” and “mania” stocks tend to follow a bubble and burst pattern. This might suggest it could be a good trading tool to use in a bull market, and not necessarily a long term buy and hold strategy.
Its net expense ratio of 0.75% is a little above average for a thematic ETF. The Roundhill Meme ETF (MEME) based on the Solactive Roundhill Meme Stock Index, has very similar expense ratio of 0.69%, though its performance is much more volatile: it has quintupled from late April 2023 to late June 2023, and is a very different product.
Whereas the Van Eck ETF selects 75 names from large caps, the Roundhill one is more concentrated, only owning 25 stocks, and can be in much smaller names. Its top ten holdings include Virgin Galactic Holdings, Rocketlab, and Gamestop (as well as Tesla which overlaps with the Van Eck list). Further down the list there is Rivian Automotive, which bottomed out about 90% below its all time high, and Carvana, which troughed out about 99% below its peak. These sorts of beaten down stocks are arguably trading on option value and can therefore bounce at least as fast as a call option, hence the spectacular performance over the past two months.