Meme-themed, social media-focused ETFs drop in value

Reddit’s Wall Street Bets crowd may have once vowed to take stocks meme ‘to the moon’, instead they and the exchange-traded funds that focus on them have been eclipsed by earthly investments. regular and boring.

The particularly poor performance of social media-focused and meme-themed ETFs is partly due to favored constituent stocks such as computer game retailer GameStop, cinema operator AMC Entertainment and electric vehicle maker Rivian.

At the start of this week, the Roundhill Meme ETF (MEME) had plunged almost 60% since its launch in December, with the VanEck Social Sentiment ETF (BUZZ) plunging 40% and the SoFi Social 50 ETF (SFYF) by 35% over the same period. The losses make the S&P 500’s decline of nearly 14% from the same seem modest by comparison.

“These funds offer narrow and highly targeted exposures, which lead to the potential for appalling levels of volatility and anyone considering an allocation should be fully prepared to strap in for the run,” said Kenneth Lamont, senior fund analyst for passive strategies at L’étoile du matin.

“This is an investment strategy that fell apart in 2022,” said Todd Rosenbluth, head of research at ETF Trends. “A same approach to investing is a risk-based approach that doesn’t work [this year].”

MEME holds an equally-weighted portfolio of 25 US stocks that “show a combination of high social media activity and high short yields.”

It is based on the idea that platforms such as Twitter, Reddit, Discord and StockTwits have amplified investors’ ability to consume and share research and investment ideas.

Its underlying index is rebalanced every two weeks based on the number of mentions on selected social media platforms over the past 14 days.

The fact that he still owns GameStop and AMC, alongside Rivian, Beyond Meat and Robinhood, shows that these stocks are still top of mind for many social media users.

Similarly, BUZZ heads to the 75 large-cap U.S. stocks, “showing the highest degree of positive investor sentiment and bullish perception based on aggregate content from online sources, including social media, news articles, blog posts and other alternative datasets”. . It is replenished monthly.

Its current portfolio is a mix of big tech companies such as Meta Platforms, Apple and Amazon and familiar meme stocks – none of which have performed well in recent months.

SFYF targets the 50 most widely held US stocks in self-directed brokerage accounts on Social Finance’s trading and investing platform, rebalanced monthly.

Its top holdings are again a mix of tech names and memes, led by Apple, Tesla and Rivian, the latter at 6% despite not ranking among the top 300 US companies.

“An overweight to Rivian was the biggest contributor to SFYF and MEME’s fall this year,” Lamont said, though it’s far from “a one-headed story.”

“These ETFs are by design high beta, outperforming the market in up markets and underperforming in down markets, and [are] the momentum factor for a long time,” added Lamont.

Elisabeth Kashner, director of global fund analytics at FactSet, agrees, saying “at the simplest level, these funds work as intended.”

“They are designed to focus on a very narrow market niche. They are considered wealth building opportunities if you can find the right theme at the right time, but there is such a thing as having the wrong segment at the wrong time. . . If you play with sharp knives, you will sometimes cut yourself,” she added.

Rosenbluth pointed out that investors this year had been rewarded for more defensive stock strategies that tended to be slower growing, dividend paying or companies in utilities, consumer staples or the industrial sector. Energy. “These [meme-themed and social media] the funds generally do not have much exposure to these sectors, so they are in trouble.

There is one exception to the trend. Unlike its rivals, Tuttle Capital Management’s FOMO ETF (FOMO), which seeks to reflect current or emerging trends, is actively managed. And unlike them, it’s only down 18.6%.

The struggles of its rivals have seen assets – never significant – dwindle even further. BUZZ went from a high of $356 million in March 2021 to $79.7 million, SFYF from $30 million in November to $17.3 million and MEME from $2.1 million in late 2021 to only $1 million.

With plummeting assets, Lamont suggested some may not survive much longer. “If history is any marker, then the low survival rates of these niche offerings don’t inspire confidence,” he said.

However, Will Hershey, co-founder and managing director of Roundhill Investments, said he has no plans to close MEME.

“We’ve only launched the fund for six months, so we’re going to give it a shot,” Hershey said, though he admitted, “We’re losing money on the fund, there’s no way to hide from it.” He said an ETF needed to raise “nearly $30-40 million to break even.”

He insisted that MEME still serves a purpose as a “short-term speculative trading vehicle.”

“In many ways, this is a negotiating vehicle rather than a long-term purchase. There are times in the market when companies that are talked about on social media and have a very high short interest are doing very well. People can capture those periods of euphoria and make them longer or shorter,” he added.

For his part, Kashner denigrated the hunt for stratospheric yield common to moonshot funds.

“We’ve known for a long time that there’s a significant need for financial education, certainly in the United States, but also more broadly,” she said. “Investors who are not financially educated are more likely to be persuaded by messages about upside potential.”