The VanEck BUZZ ETF: How to Turn Sentiment Into Profit

The VanEck Vectors Social Sentiment ETF (BUZZ) taps into social media's growing voice and David Portnoy's popularity. But the exposure it provides isn't quite what you might think.

Asset manager VanEck is tapping into the wisdom of the crowd for its latest product offering: the VanEck Vectors Social Sentiment ETF (BUZZ).

And they've brought one of the loudest of loudspeakers in to let you know about it.

The BUZZ ETF, which is set to launch March 4, tracks an index comprised of stocks benefiting from positive sentiment expressed through social media, news, blogs and other “alternative datasets.”

It's a fitting launch given that the past year has seen a groundswell in daytrading, especially among young people who are taking their stock-picking cues from Reddit forums such as r/WallStreetBets and other social media platforms.

And as if to drive the point home, the BUZZ ETF's launch was announced on Twitter by Dave Portnoy. The, ahem, vocal CEO of Penn National's (PENN) Barstool Sports began day trading heavily during the COVID lockdowns of 2020, inspiring many of his followers to do the same. (Portnoy also is a partner and part-owner of Buzz Holdings, the firm behind BUZZ's underlying index.)

But early hype – and early detractions – about what this fund could be don't quite hit the mark. Read on as we discuss what the BUZZ ETF really is … and what it isn't.

What the BUZZ ETF Is

It's a sentiment tracker.

VanEck says its VanEck Vectors Social Sentiment ETF is a collection of larger stocks – names with market values of at least $5 billion – that “exhibit the highest degree of positive investor sentiment and bullish perception” based on content that one could typically find online. Twitter posts. News articles. Blogs.

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The BUZZ ETF tracks the BUZZ NextGen AI US Sentiment Leaders Index, which uses natural language processing technology to ingest and determine the positive, negative or neutral value of millions of inputs.

“It's all about training the models to understand written text the same way people in the investment world understand that text,” says Jamie Wise, founder and CEO of Buzz Holdings. “People speak very differently about stocks than they do, say, product reviews on Amazon.”

After ranking stocks by factors such as degrees of sentiment and breadth of discussion, the system's algorithms pluck the 75 top-scoring names for inclusion in the index.

The BUZZ index repeats the process as part of a monthly rebalancing, with a small “buffer” provision included. If a stock was ranked at 71 to 75 in the prior month, and following rebalancing it would be ranked at 76 to 80, the index keeps said stock to minimize turnover (and thus trading costs).

What It Isn't

The BUZZ ETF is not a way to recreate the r/WallStreetBets phenomenon.

We explain the GameStop/WallStreetBets phenomenon in more detail here, but for the uninitiated, a very quick explanation:

Back in January, a Reddit community identified a number of stocks that Wall Street was overwhelmingly betting against. These stocks were perfect targets for a so-called short squeeze, in which a burst of buying impels people making bearish bets against the stock to unwind their trades – by purchasing more shares, thus driving the stock even higher. The greatest stock of focus, GameStop (GME), was squeezed as much as 2,463% higher at its peak … before crashing back down to earth, that is.

That brings us back to the BUZZ ETF.

“There's noninvestment angles, and in fact, I think the original thought process was to invest in companies that were trending outside of the investment world, on the assumption that there would be investment benefits when the company was trending.”

Wise also points out that despite being borne of high positive sentiment, the BUZZ ETF isn't just a list of hot growth names.

“There are growth stories that they expect to do well,” he says, “but there's also value sentiment, where stocks have fallen too far, and all the traditional reasons why people would be positive about a stock.”

Top 10 holdings include not only larger growth names such as Facebook (FB) and Amazon.com (AMZN) and newer growth plays such as DraftKings (DKNG), but previously trod-upon stocks such as Ford (F) and American Airlines (AAL).

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Interestingly, the high minimum market cap requirement and diversification across dozens of stocks could make this a much calmer fund than what “to the moon!” types and WSB detractors alike might expect.

What the BUZZ ETF Is

This ETF is a second chance.

VanEck is actually trying its hand at some light necromancy with the VanEck Vectors Social Sentiment ETF. The BUZZ NextGen AI US Sentiment Leaders Index, which currently dictates BUZZ's holdings, used to power the Sprott Buzz Social Media Insights ETF, which hit markets in 2016 with the ticker BUZ.

“The index itself went live back in December 2015, and the research that led to the index started a year before that,” Wise says. “We were longtime believers of potential insights from the collective conviction of the online community.”

The market wasn't a believer, though, at least not at first. Sprott's fund closed after just three years.

But that doesn't necessarily mean BUZ was a bad product.

“The ETF graveyard is littered with strategies that sound like they should work, and they failed to gather assets,” says Rosenbluth, who thinks “this time will be different” because companies and stocks are being impacted by social sentiment more than they would have even just a few years ago.

“I think this time around, investors are going to be more likely to consider such a strategy because there's a growing number of investors that found their way toward ETFs through social media platforms,” he says, adding, “I think it could be one of the most successful products to come live in 2021.”

What It Isn't

The BUZZ ETF certainly isn't like most ETFs in that it's launching with some controversy.

The first bit has to do with Portnoy's involvement.

Portnoy is not directly connected to VanEck, something the fund provider made clear in an emailed statement to Sportico: “He represents the Index and has no affiliation with VanEck. He does not provide investment advice on behalf of VanEck. There is no affiliation with VanEck and Barstool Sports.”

However, as mentioned before, he is a partner in index provider Buzz Holdings, along with Wise and Michael Kimel; the latter is a co-founder of Ontario-based Chase Hospitality Group. And the very nature of BUZZ's selection methodology connects Portnoy to the BUZZ ETF in a highly unusual way.

“Portnoy is a part owner in Buzz Holdings, he's a director, so he has a financial stake in the index provider,” says Lara Crigger, Editor In Chief, Director of Content at ETF Action. “But he's also part of the social media ecosystem on which the index is taking input. So if he posts about PENN or GME or whatever, he's contributing to that social media mention, he conceivably could be directly influencing the rankings of which his index is based.”

Wise minimized Portnoy's potential role in the rankings, explaining that “Dave Portnoy's view about Apple is not weighted any higher than your view about Apple.”

That said, Portnoy's reach – he has 2.3 million Twitter followers as of this writing – still theoretically gives his messaging far more influence to shape the social conversation, and thus the rankings, than your average Joe.

“If he talks up a stock, that's likely going to affect the rankings,” Crigger says.

Crigger also points out a few oddities in Portnoy's Twitter announcement – a video with Portnoy's alter-ego “Davey Day Trader” hyping BUZZ's imminent launch. Among them is that every time Portnoy mouths the word “index” in the video, another person's voice is dubbed over his, saying “ETF.”

“Since shares of an ETF are registered securities, any direct or indirect reference to the fund can be construed as selling or soliciting investments in securities which requires an individual to be licensed as a registered representative of a broker-dealer,” says Sean Wilke, Partner and Head of Strategic Growth at Greyline, a regulatory and business consulting firm. But he adds, “There are very limited carve-outs from those registration requirements if, for instance, those communications are purely incidental to a more substantive role with the fund, such as portfolio manager.”

Crigger says she's been covering ETFs for 15 years, and in that time most of the people she's spoken with wouldn't even link to an article about their ETF – or a podcast on which they appeared – if they had said “ETF.”

“He's thumbing his nose at the regulations,” she says. “Index providers can talk about their index, but you can't talk about your ETF. He never says, with his own voice, the three letters ‘ETF.' He is moving his mouth as they're being said, and the audio can be heard on the video. But he is technically not the one saying the word ‘ETF.'”

This kind of behavior, at the very least, could be a turnoff to institutional money. That's no small loss, especially considering that hedge funds and other high-net-worth investors have for years understood and tried to tap into the value of consumer and social sentiment.

Portnoy's high-energy mischief has an undeniable pull on younger generations, however. That might be pivotal in attracting more retail funds than the BUZZ ETF otherwise might have achieved – albeit at the potential cost of PR and regulatory headaches.

Read more by Kyle Woodley at Kiplinger.com 

Kyle Woodley was long AMZN and DKNG as of this writing.

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