VanEck has introduced a new ETF that attempts to pick outperforming US large-cap equities by measuring investor sentiment across social media platforms.
The ETF uses AI technology to select stocks with the most positive investor sentiment on social media platforms.
The VanEck Vectors Social Sentiment ETF (BUZZ US) has listed on NYSE Arca and comes with an expense ratio of 0.75%.
Ed Lopez, Managing Director, Head of ETF Product for VanEck, commented: “We are experiencing a monumental moment within the history of the retail investor—Twitter, Reddit, Stocktwits and dozens of other platforms have established communities for investors to discuss stocks, and as a result of soaring online engagement, they have become an alternative dataset for investors to scour and utilize for a performance edge.
“BUZZ empowers individual investors to potentially benefit from the predictive insights gained by measuring the collective convictions about stocks, ultimately building the benchmark for social sentiment.”
The fund is linked to the BUZZ NextGen AI US Sentiment Leaders Index which was developed by Toronto-based hedge fund manager Periscope Capital. An ETF tracking the same index was launched by Sprott Asset Management in 2016; however, the fund, the Sprott BUZZ Social Media Insights ETF (BUZ US), was shuttered in 2019 due to a lack of investor demand.
The index’s eligible universe covers US-listed equities with market capitalizations greater than $5 billion and average daily trading volume exceeding $1 million. By focusing on the large-cap segment, the methodology avoids the volatility associated with smaller companies, such as GameStop, that have been targeted by Reddit traders.
The index utilizes artificial intelligence technology to scour through millions of stock-specific messages from online sources including social media, news articles, blog posts, and other alternative datasets to determine whether a company’s sentiment is positive, negative, or neutral on a collective basis.
The proprietary model scores and ranks each stock based on the degree of positive sentiment and breadth of the discussion. The 75 stocks with the highest scores are selected for inclusion and weighted according to their sentiment score while capping any single constituent at 3%.
Interestingly, during periods when investor sentiment is broadly bearish, the methodology will still select 75 constituents by choosing stocks that have the least negative sentiment.
The index is reconstituted and rebalanced on a monthly basis with buffer rules helping to limit unnecessary turnover.
Jamie Wise, CEO of Periscope Capital, said: “We created the BUZZ Index in 2015 because we saw the potential of the data. Alternative data sets like this are also what sophisticated institutional investors are now pouring over to find an edge. VanEck is the ideal provider to help make this kind of strategy accessible to the masses and we’re excited to be working with them on this new ETF.”
Lopez added: “The real power of the index is its ability to distill millions of diverse opinions into actionable stock picks. It can identify stocks poised for strong future growth potential as well as stocks that could be considered contrarian and discounted value opportunities.”