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Hundreds of new exchange traded funds come to market every year. Roughly 300 – a record – did so last year. As advisors and ETF users well know, new ETFs aren't like initial public offerings (IPOs) for individual stocks.
Meaning rare are the examples of a rookie ETF generating intense amounts of hype. However, remain engaged with the industry long enough and you'll find that every now and then, an infant ETF stirs up massive hoopla. The VanEck Vectors Social Sentiment ETF (NYSEARCA:BUZZ) is a prime example.
As I write this piece, BUZZ is coming off its third trading day and already has $283.2 million in assets under management – a staggering amount for an ETF of this age and when considering it came to market without big institutional seeding. To put BUZZ's out-of-the-gate asset-gathering proficiency into context, some of 2020's most successful new ETFs garnered $100 million or barely more in assets.
Why Some Clients Will Inquire About BUZZ
An interesting element with BUZZ is that, in the strictest of the word, it's not “new.” Rather, it's resuscitation of a fund that died two years ago. VanEck is new as the issuer, but the folks behind the BUZZ NextGen AI US Sentiment Leaders Index (BUZZTR) kept the benchmark alive although there wasn't a fund linked to the gauge.
That index tracks “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,” according to VanEck.
In plain English, the index “scrapes” internet forums such as StockTwits, Twitter and yes, Reddit, for positive chatter on various on individual stocks.
That's one reason why advisors are apt to field questions about BUZZ, particularly from younger clients. The other reason, also demographically germane, is because BUZZ has a celebrity pitchman – Barstool Sports founder David Portnoy. Prior to the coronavirus pandemic, Portnoy was already hit with millennials and Gen Z, a status that's only been enhance due to his day trading antics and sticking up for small investors persona.
Look, we all know that apparel, food and beverage, consumer technology products and various lifestyle offerings are perfectly compatible with celebrity endorsers. ETFs, well that's another.
Some critics are levying charlatan claims against Portnoy for his involvement with BUZZ – he's an investor in the index provider and Penn National Gaming (NASDAQ:PENN), which owns 36% of Barstool, is a holding in BUZZ. For those that insist on nitpicking, the former point is perhaps relevant, but Penn's inclusion in the ETF is simply a result of the BUZZ NextGen AI US Sentiment Leaders Index's methodology. Nothing else.
BUZZ Brass Tacks
Putting the hype and Portnoy's involvement aside, the reality is BUZZ is likely a satellite position for many clients or one that they own in self-directed accounts. Its 75 holdings hardly constitute diversification and there's some sector-level risk as three groups – tech, consumer discretionary and communication services – combine for 63%.
All that said, advisors shouldn't be dismissive of the BUZZ concept. Tracking social sentiment is a strategy some hedge funds have used for years, deploying expensive, sophisticated computer algorithms to do what BUZZ does for just 0.75% a year.
Most importantly, not only is investing using social sentiment is not a far-flung idea, it's a productive one. The original version of BUZZ and the underlying index frequently outperformed broader benchmarks, such as thee S&P 500.
That's what really matters. As for Portnoy, he's doing his job in terms of getting investors into the BUZZ door. For advisors, there are some client engagement benefits to his involvement with BUZZ. At the very least, it's a conversation piece.
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