Have you heard about the new exchange-traded fund (ETF) that’s all the buzz around Wall Street and social media? Investors everywhere want to know “Is the BUZZ ETF a good investment?” But I think this might backfire for an obvious reason…
The VanEck Vectors Social Sentiment ETF (BUZZ) — launching today — tracks investor chatter across social media platforms and blogs like Twitter, StockTwits, Yahoo Finance, Benzinga, Reddit and more.
The EFT — accurately named BUZZ — will invest in the 75 stocks with the best shareholder sentiment, and that have at least a crisp $5 billion market cap. The research behind finding the top 75 stocks is done by an AI-driven program that searches the web for mentions on the stocks. The fund is rebalanced each month.
But that’s not what first caught my eye about the launch of this ETF…
Barstool Sports founder Dave Portnoy partnered with the makers of the ETF and said he wouldn’t take his cut of commission unless it beats the S&P 500…
That sounds honorable, but does it make the BUZZ ETF a good investment?
Financial institutions operate by assets under management (AUM). AUM is the total market value of investments (the amount of money) a financial institution is handling for their clients. Basically, Portnoy would get a small cut of commission based on how many AUM’s there are in the ETF.
So I respect what Portnoy is doing… although there are a lot of other people with their hands in the same pot who are going to take their commission regardless.
But the real problem I have with BUZZ is something most investors haven’t considered: The ETF is going to do exactly what it was designed to do.
It’s going to track all these hot social media stocks people are talking about on Reddit and Twitter… but you have to think about the other side of the trade. There are algorithms that are specifically wired to run stop-orders.
For example, let’s say you put in an order to buy a stock for $10. The stock falls to $9 and you get stopped-out. And then maybe the stock bounces back to $9.50.
This ultimately means these sell programs cause share prices to fall more drastically than need be when the stock begins to sell.
So certain stocks will have their day in the sun when the BUZZ ETF puts them in the top 75 holdings BUT I think after the initial pop, the stock will quickly fizzle out.
We’ve actually seen this happen a lot recently with SPACs — think about Churchill Capital Corp. (NYSE: CCIV) and Lucid Motors — and short-squeeze stocks like GameStop Corp. (NYSE: GME) and AMC Entertainment Holdings Inc. (NYSE: AMC).
Once everyone hops on a bandwagon, the wagon tends to slow.. Eventually it will break down on people.
But that’s not the biggest red flag I’m seeing when it comes to investing in the BUZZ ETF…
Watch today’s video to find more about whether the BUZZ ETF is a good investment or not. As always, leave your thoughts in the comments below, and don’t forget to subscribe to my YouTube channel to stay up to date with all things options trading.
P.S. What do an 83% stock price dip, dividend cuts and swimming in debt have in common?
They were all the news about Apache Corp. last April.
But with those headlines, how did ex-hedge fund manager Lance Ippolito know to buy in at that time…
And walk away with a 157% return just over a month later?
He just waited for this.