By Coulter Regal, CFA, Associate Product Manager
When people first hear about an investment strategy that targets stocks with the most positive sentiment based on social media chatter and online discussions, they may be quick to assume that it is full of nothing but the latest growth or momentum stocks. However, a closer look at the strategy and holdings paints a different picture.
A Unique Blend of Styles and Stocks
Looking at the top holdings of VanEck Vectors Social Sentiment ETF (BUZZ), you might see some of the expected names like Tesla, Apple, or Amazon, however, you can also find some rather unexpected names like Ford Motor, Boeing, or Walt Disney as well. This unique selection of stocks is created as a by-product of the online discussions people are having about a wide range of investments. Whether growth or value focused, momentum driven or contrarian, short-term or long-term, investors can be bullish on particular stocks belonging to any of these factors. Combine the style agnostic nature of sentiment, with a monthly rebalance and the result is a strategy comprised of a blend of styles that can shift as market environments and sentiment change.
Historical Style Allocation – The BUZZ NextGen AI US Sentiment Leaders Index (“BUZZ Index” or “Sentiment Leaders Index”) 8/31/2016 – 2/28/2021
Source: FactSet. Past performance is no guarantee of future results. Index performance is not illustrative of fund performance. For fund performance current to the most recent month-end, visit www.vaneck.com.
Capturing Growth Potential
To help illustrate this unique blend of styles, we take a look at examples of two very different stocks, both of which are current holdings in VanEck Vectors Social Sentiment ETF. While BUZZ is not directly a growth or momentum strategy, as the underlying index does not incorporate the use of traditional factors, it can however, pick up on emerging growth stories through rising investor sentiment. One example of this is the e-commerce platform and retail point-of-sale systems company Shopify Inc. (SHOP). Shopify first entered the BUZZ Index in October of 2018 based off of rising investor sentiment and has remained a primary constituent since. Beyond just identifying the emerging growth story of SHOP, the index was also able to capture the longer-term story as continued positive sentiment indicated that there was still room left for the stock to run even after its price had doubled.
Shopify Inc. (SHOP) Stock Price (1/1/2018 – 2/28/2021)
Source: Morningstar Direct. Indices are not securities in which investments can be made. This is not an offer to buy or sell, or recommendation to buy or sell any of the securities mentioned herein. Fund Holdings will vary. For a complete list of holdings in the ETF, please visit www.vaneck.com.
Identifying Value Opportunities
Outside of capturing growth potential, sentiment can also pick up on value opportunities. An example that demonstrates this was the BUZZ Index’s allocation to Carnival Corporation (CCL), during the depths of the pandemic-induced market turmoil. In March and April of 2020, many transportation stocks suffered extreme share price declines during the COVID-19 selloff. Carnival was hit particularly hard during this period, and the leisure cruise line giant saw its stock price fall over 80%. Despite the negative headlines, sentiment began to turn positive for Carnival as investors saw a deep value opportunity, believing the company could withstand and eventually recover from the pandemic. The BUZZ Index identified this shift in sentiment and CCL has been a top contributor to performance since its addition to the index at the April 2020 rebalance.
Carnival Corporation (CCL) Stock Price (1/1/2020 – 2/28/2021)
Source: Morningstar Direct. Indices are not securities in which investments can be made. This is not an offer to buy or sell, or recommendation to buy or sell any of the securities mentioned herein. Fund Holdings will vary. For a complete list of holdings in the ETF, please visit www.vaneck.com.
VanEck Vectors®️ Social Sentiment ETF
Leveraging sentiment as a strategy for stock selection can result in a diverse portfolio that can offer investors unique equity exposure and a distinct source of alpha potential. Investors can gain access to this unique exposure through BUZZ, which seeks to replicate the BUZZ Index. The BUZZ Index tracks the performance of the 75 large cap U.S. stocks that 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.
Originally published by VanEck, 4/7/21
Important Disclosures
The information presented does not involve the rendering of personalized investment, financial, legal, or tax advice. Certain statements contained herein may constitute projections, forecasts and other forward looking statements, which do not reflect actual results, are valid as of the date of this communication and subject to change without notice. Information provided by third party sources are believed to be reliable and have not been independently verified for accuracy or completeness and cannot be guaranteed. The information herein represents the opinion of the author(s), but not necessarily those of VanEck.
An investor cannot invest directly in an index. Returns reflect past performance and do not guarantee future results. Results reflect the reinvestment of dividends and capital gains, if any. Certain indices may take into account withholding taxes. Index returns do not represent Fund returns. The Index does not charge management fees or brokerage expenses, nor does the Index lend securities, and no revenues from securities lending were added to the performance shown.
BUZZ NextGen AI US Sentiment Leaders Index (the “BUZZ Index”) is a product of BUZZ Holdings ULC (“BUZZ Holdings”), and has been licensed to Van Eck Associates Corporation for use in connection with the VanEck Vectors Social Sentiment ETF.
“BUZZ” is a trademark of BUZZ Holdings, which has been licensed by Van Eck Associates Corporation for use in connection with the BUZZ Index.
VanEck Vectors Social Sentiment ETF is not sponsored, endorsed, sold or promoted by BUZZ Holdings, or its shareholders, or the licensor of the BUZZ Index and/or its affiliates and third party licensors. BUZZ Holdings makes no representation or warranty, express or implied, to the owners of the VanEck Vectors Social Sentiment ETF or any member of the public regarding the advisability of investing in securities generally or in VanEck Vectors Social Sentiment ETF, particularly or the ability of the BUZZ Index to track general market performance.
BUZZ Holdings’ only relationship to Van Eck Associates Corporation with respect to the BUZZ Index is the licensing of the BUZZ Index and certain trademarks of BUZZ Holdings. The BUZZ Holdings are determined and composed by BUZZ Holdings without regard to Van Eck Associates Corporation or the VanEck Vectors Social Sentiment ETF. BUZZ Holdings has no obligation to take the needs of Van Eck Associates Corporation or the owners of VanEck Vectors Social Sentiment ETF into consideration in determining and composing the BUZZ Index.
BUZZ Holdings are not responsible for and have not participated in the determination of the prices of VanEck Vectors Social Sentiment ETF or the timing of the issuance or sale of securities of VanEck Vectors Social Sentiment ETF or in the determination or calculation of the equation by which VanEck Vectors Social Sentiment ETF securities may be converted into cash, surrendered, or redeemed, as the case may be. BUZZ Holdings have no obligation or liability in connection with the administration, marketing or trading of VanEck Vectors Social Sentiment ETF. There is no assurance that investment products based on the BUZZ Index will accurately track index performance or provide positive investment returns.BUZZ Holdings is not an investment advisor and the inclusion of a security in the BUZZ Index is not a recommendation by BUZZ Holdings to buy, sell, or hold such security, nor should it be considered investment advice.
BUZZ HOLDINGS DOES NOT GUARANTEE THE ADEQUACY, ACCURACY, TIMELINESS AND/OR THE COMPLETENESS OF THE BUZZ INDEX OR ANY DATA RELATED THERETO OR ANY COMMUNICATION WITH RESPECT THERETO, INCLUDING BUT NOT LIMITED TO, ORAL OR WRITTEN COMMUNICATION (INCLUDING ELECTRONIC COMMUNICATIONS). BUZZ HOLDINGS SHALL NOT BE SUBJECT TO ANY DAMAGES OR LIABILITY FOR ANY ERRORS, OMISSIONS, OR DELAYS THEREIN. BUZZ HOLDINGS MAKES NO EXPRESS OR IMPLIED WARRANTIES, AND EXPRESSLY DISCLAIMS ALL WARRANTIES, OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE OR USE OR AS TO RESULTS TO BE OBTAINED BY Van Eck Associates Corporation, OWNERS OF THE VanEck Vectors Social Sentiment ETF, OR ANY OTHER PERSON OR ENTITY FROM THE USE OF THE BUZZ INDEX OR WITH RESPECT TO ANY DATA RELATED THERETO. WITHOUT LIMITING ANY OF THE FOREGOING, IN NO EVENT WHATSOEVER SHALL BUZZ HOLDINGS BE LIABLE FOR ANY INDIRECT, SPECIAL, INCIDENTAL, PUNITIVE, OR CONSEQUENTIAL DAMAGES INCLUDING BUT NOT LIMITED TO, LOSS OF PROFITS, TRADING LOSSES, LOST TIME OR GOODWILL, EVEN IF THEY HAVE BEEN ADVISED OF THE POSSIBILITY OF SUCH DAMAGES, WHETHER IN CONTRACT, TORT, STRICT LIABILITY, OR OTHERWISE. THERE ARE NO THIRD PARTY BENEFICIARIES OF ANY AGREEMENTS OR ARRANGEMENTS BETWEEN BUZZ HOLDINGS AND Van Eck Associates Corporation, OTHER THAN THE LICENSORS OF BUZZ HOLDINGS.
Effective August 18, 2016, BUZZ Indexes Inc. implemented changes to the BUZZ NextGen AI US Sentiment Leaders Index construction rules. The index constituent count was increased from 25 to 75 stocks and the maximum constituent weight was reduce from 15% to 3%. These change may result in more a diversified exposure to index constituents than under the rules in effect prior to this date. Past performance is no guarantee of future results.
An investment in the Fund may be subject to risks which include, among others, risks related to social media analytics, investing in equity securities, medium-capitalization companies, information technology, communication services, consumer discretionary, health care and industrials sectors, market, operational, high portfolio turnover, index tracking, authorized participant concentration, new fund, absence of prior active market, trading issues, passive management, fund shares trading, premium/discount and liquidity of fund shares, non-diversified and concentration risks which may make these investments volatile in price or difficult to trade. Medium-capitalization companies may be subject to elevated risks.
Investing in companies based on social media analytics involves the potential risk of market manipulation because social media posts may be made with an intent to inflate, or otherwise manipulate, the public perception of a company stock or other investment. Although the Sentiment Leaders Index provider attempts to mitigate the potential risk of such manipulation by employing screens to identify posts which may be computer generated or deceptive and by employing market capitalization and trading volume criteria to remove companies which may be more likely targets for such manipulation, there is no guarantee that the Sentiment Leaders Index’s model will successfully reduce such risk. Furthermore, text and sentiment analysis of social media postings may prove inaccurate in predicting a company’s stock performance.
Investing involves substantial risk and high volatility, including possible loss of principal. An investor should consider a Fund’s investment objective, risks, charges and expenses carefully before investing. To obtain a prospectus and summary prospectus for VanEck Funds and VanEck Vectors ETFs, which contain this and other information, call 800.826.2333 or visit vaneck.com. Please read the prospectus and summary prospectus for VanEck Funds and VanEck Vectors ETFs carefully before investing.
