VanEck Vectors Social Sentiment ETF Is Wall Street’s New Sentiment-Based Name

With the rise of Reddit and r/WallStreetBets, retail traders have made a huge impact on Wall Street. Not surprisingly, institutions are looking to see how they can harness this energy going forward. One such interesting idea is a newly-launched exchange-traded-fund (ETF). The VanEck Vectors Social Sentiment ETF (NYSEARCA:BUZZ). BUZZ stock seeks to enable investors to profit from owning the most popular names on social media.

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The BUZZ ETF just launched at the beginning of March. However, it’s already topped $500 million in assets as traders are excited about the idea.

In theory, the concept behind the VanEck Vectors Social Sentiment ETF makes a great deal of sense: With retail traders dominating the trading of many stocks, a fund that rides this wave should be profitable for investors. In practice, though, will it do well? I’ll take a look.

What’s BUZZ Stock Seeking To Accomplish?

Building an ETF based on retail investors’ sentiment might seem difficult to accomplish at first glance. How will a fund manager determine what stocks to put in the fund? BUZZ stock is tracking a specific social sentiment index. Here’s a description of how the index works:

“[The social sentiment index] is intended to track the performance of the 75 large cap U.S. stocks which exhibit the highest degree of positive investor sentiment and bullish perception based on content aggregated from online sources including social media, news articles, blog posts and other alternative datasets.”

So by gathering information about sentiment towards stocks from around the internet, VanEck Vectors Social Sentiment seeks to own names that most investors like.

In the end, however, fundamentals such as revenue growth and profitability drive stock prices, not the percentage and number of people who post favorably about equities  on internet forums.

However, in a way, the ETF’s social media angle is a sort of momentum strategy. By owning the stocks that people are most excited about, you’re going to tend to have a lot of names whose shares are currently performing well. And momentum trading strategies generally outperform the market over certain time periods.

Usually managers measure momentum using stocks’ quantitative data. But measuring investors’ sentiment on social media and other online venues might provide a clearer signal. Or perhaps not. We’ll see how BUZZ stock performs over time.

A good benchmark against which to measure the BUZZ ETF, for example, is the iShares Edge MSCI USA Momentum Factor ETF (BATS:MTUM). That momentum ETF also seeks to own currently top-performing stocks and has some of the same names as BUZZ.

VanEck Vectors Social Sentiment Has a Solid, Diversified Portfolio

Another potential risk facing BUZZ stock is that investors who post on the internet could fall in love  with too many highly speculative names, such as risky biotech firms and small gold miners.

However, VanEck Vectors Social Sentiment avoids that problem by setting a strict minimum market capitalization limit of $5 billion. That keeps most of the dodgy names away from the ETF.

When I was writing this column, however,  the ETF’s top holding was upstart vaccine maker Novavax (NASDAQ:NVAX). After that, though, its next biggest holdings were Boeing (NYSE:BA), Apple (NASDAQ:AAPL) and Walt Disney (NYSE:DIS). All of those are solid household,  blue chip names.

But VanEck Vectors Social Sentiment does have some riskier, unproven stocks in its top ten holdings, such as Draftkings (NASDAQ:DKNG) and Virgin Galactic (NYSE:SPCE). The bulk of its funds, however, have been invested in large, profitable companies.

As a result, BUZZ stock could be a decent mix of solid large-cap growth names and  a few smaller, more spicy, cutting-edge stocks.

The Verdict on the VanEck Vectors Social Sentiment ETF

It’d be easy to dismiss BUZZ stock as a meme ETF. I understand that. However, there’s a lot more to it than you might think at first glance. Its  actual portfolio isn’t terrible by any means.

But not everyone needs to own it. You can get more out of the Social Sentiment’s stocks by buying other,  better established ETFs with lower expense ratios. However, if you like the idea of using social media as a way of finding momentum stocks, the ETF could be a decent way to try out that idea.

On the date of publication, Ian Bezek did not have (either directly or indirectly) any positions in the securities mentioned in this article.

Ian Bezek has written more than 1,000 articles for InvestorPlace.com and Seeking Alpha. He also worked as a Junnior Analyst for Kerrisdale Capital, a $300 million New York City-based hedge fund. You can reach him on Twitter at @irbezek.


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