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BUZZ, the ETF of Social-Media Darlings, Drops in Trading Debut

By Michael Wursthorn and Sebastian Pellejero 

The VanEck Vectors Social Sentiment ETF started trading Thursday in a bid to play off the retail-investing boom and the buzz investors are creating on Reddit, Twitter and other social media platforms around their favorite stocks.

"This represented to us a new era of investing," said Ed Lopez, head of ETF product at asset manager Van Eck Securities Corp., manager of the ETF which goes by the ticker BUZZ. "People are sourcing information online and, more broadly, with the sharing of ideas."

Investors hoping to use the ETF to hop on the recent craze in GameStop Corp. and AMC Entertainment Holdings Inc. will be sorely disappointed, though. The ETF has 75 stocks within it, but the videogame retailer and shares of some other companies at the epicenter of the recent Reddit-trading frenzy aren't included.

Jamie Wise, founder of Buzz Indexes who also runs a hedge fund strategy out of Toronto, said that's because GameStop, AMC and other stocks retail traders have been buzzing about failed to meet the indexing criteria on which the ETF is based.

Companies that trade on major U.S. exchanges and have market values of at least $5 billion are the initial hurdles for entry, and one GameStop failed to meet as of the index's last quarterly rebalance, Mr. Wise said. GameStop's market cap was about $8.5 billion on Thursday and rose as high as $22.7 billion in late January.

Other than that, constituents need to see at least $1 million in three-month average daily trading volume and be consistently talked about on social media over a longer period. Exactly how many mentions is part of Buzz Indexes's secret sauce.

However, the fund features several other stocks popular with the denizens of Reddit's WallStreetBets and Twitter. There's electric-car maker Tesla Inc., fuel-cell developer Plug Power Inc. and online gambling site DraftKings Inc. But there's also a variety of staid stocks, including Ford Motor Co., Pfizer Inc. and Boeing Co.

That assortment of stocks proved vulnerable to the market's ongoing pullback. The recent surge in Treasury yields, coupled with expectations for big economic growth this year, has forced investors to reassess how much stock exposure they have. That's mostly been to the detriment of tech and other growth stocks, many of which make up BUZZ.

Stocks across the market registered further losses on Thursday as that shift continued. The ETF was down 3.4% during its trading debut, worse than the S&P 500's 1.1% slide. PlugPower dropped 13%, while Tesla and DraftKings were both off about 6%.

"They're having a challenging environment right now," Mr. Wise conceded of some of the fund's constituents.

This is the second go-around for Mr. Wise's index. An earlier incarnation was used in the Sprott Buzz Social Media Insights ETF. It was launched in 2016, managed to outperform the S&P 500 over certain periods but never garnered much fanfare. The asset manager at the time shut the fund after raising just $8.8 million, well below the level of viability for an ETF.

This time around, Messrs. Wise and Lopez say the timing appears right for an ETF built on social-media hype. Not taking any chances, Mr. Wise brought in Dave Portnoy, founder of Barstool Sports Inc. who also considers himself a brash day trader and uses social media to tout his wild bets.

Mr. Portnoy, a part owner in Buzz Indexes, has been promoting the ETF all week since he took to his signature water-cooler-style podium in a video explaining how the fund works, how he got involved, and, ultimately, why his legion of online followers should buy it.

"They showed me their algorithm. I said, 'This is brilliant, of course it will work,'" Mr. Portnoy said in the video. "Twitter, social media, all of it is dictating stock prices."

Mr. Wise said the decision to bring in Mr. Portnoy -- who has changed his Twitter profile picture to the ETF's logo, a drawing of a bee -- was a no-brainer. "He's a voice among millions in the online community," he added.

Mr. Lopez, of Van Eck, said Mr. Portnoy has no affiliation with the firm, only the index provider.

Mr. Portnoy continued to drum up support for the ETF on Thursday, even as red flashed across the stock market.

"If you don't think what is happening with $BUZZ right now doesn't show the power of me and Barstool, I don't know what to tell you," Mr. Portnoy tweeted, adding, "*I am not a financial advisor."

Write to Michael Wursthorn at Michael.Wursthorn@wsj.com and Sebastian Pellejero at sebastian.pellejero@wsj.com

 

(END) Dow Jones Newswires

March 04, 2021 15:40 ET (20:40 GMT)

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