Roundhill Investments has launched a new thematic equity ETF that is designed to benefit from heightened retail trading in so-called “meme stocks”.

Retail investors have helped drive up the price of certain companies targeted by short-sellers.

The Roundhill MEME Stock ETF (MEME US) has been listed on NYSE Arca with an expense ratio of 0.69%.

Meme stocks really started to grab headlines in early 2021 when scores of individual investors coordinated through online forums to drive up the share prices of certain companies that were being targeted by short-sellers.

Video game retailer GameStop, one of the most notable meme stocks during this period, saw its share price rise from $18 at the start of 2021 to $325 on 29 January 2021.

These “short squeezes” were often successful in that the short-sellers, usually large hedge funds, were forced to exit their positions, losing billions of dollars, while many retail investors netted considerable profits in the process. Consequently, some market commentators noted the phenomenon resembled a symbolic shift in power away from traditional Wall Street institutions toward less wealthy individuals.

The strategy is highly risky, however, as almost all participants realize that their actions are driving stock prices far above intrinsic values and, when sentiment cools, a sharp correction is likely forthcoming – GameStop’s share price has since fallen 47% and is currently trading around $173 (as of 8 December).

Methodology

The ETF tracks the Solactive Roundhill Meme Stock Index which screens a universe of US-listed equities (including American Depository Receipts), selecting the 25 companies that are exhibiting the most elevated levels of social media activity and short interest (calculated as the percentage of a security’s float which is currently sold short).

Constituents are equally weighted, and the index is reconstituted and rebalanced every two weeks in a bid to capture new trending stocks as they emerge.