Roundhill launches ETF for Wall St Bets
Thematic ETF specialist Roundhill is launching an ETF targeting meme stocks.
These stocks are those which are popular on message boards like Reddit—for reasons good or ill. They became famous after the GameStop saga in 2020.
The Roundhill MEME ETF (MEME) identifies meme stocks using two variables: short interest and social media buzz. Short interest measures how heavily short sold a stock is. While social media buzz measures how frequently and intensely something is discussed on Twitter, Reddit, Discord. Solactive will provide the index.
While high levels of short selling are often taken as a signal that a stock should be avoided, for meme stocks it is taken as a sign that a “short squeeze” – which is where short sellers are forced to buy back the stocks they sold – may be imminent. Short squeezes can sharply and quickly drive up share prices.
MEME invests in 25 US stocks which will be equally weighted. It will rebalance twice a week, making it one of the most frequently rebalanced index-tracking ETFs in the world.
It charges 0.69%.
Bernie’s commentary – giving it a go anyway
There’s a lot to say about this fund. Rebalancing twice a week will create massive turnover and transaction costs. And high portfolio turnover is strongly associated with underperformance. Meme stocks are also sporadic and unpredictable; there’s no good reason to think this approach can be indexed. What is more, the fund charges a 0.69% fee for something a lot of investors feel that they can just do themselves. I’d back myself to pick a meme stock just by reading r/wsb.
Still, this is a brave piece of product building. I presume that Roundhill’s people are smart enough to know that this approach is a long shot. And know just how strange (and just how much work for your portfolio managers) rebalancing a fund twice a week really is. Yet they’re giving it a go anyway. Good on them.