By David Schassler, Portfolio Manager and Head of Portfolio and Quantitative Investment Solutions, VanEck
An investment strategy based around the measurement of social sentiment may seem like it would be driven by typical style factors; however, the truth is far more nuanced.
The idea of investing in stocks based on social media posts may strike some as a strategy that might be driven purely by growth and momentum. This line of thinking is an inaccurate simplification of the valuable insights derived from millions of daily discussions happening online. The truth is far more nuanced and informative. An investment strategy based on measuring social sentiment has led to performance less driven by typical style factors (growth, value, momentum, volatility, etc.) and more by stock selection, meaning returns unexplained by other risk factors. We call this the social sentiment factor.
Measuring Social Sentiment
The BUZZ NextGen AI US Sentiment Leaders Index (“BUZZTR” or “Index”) provides a framework that not only incorporates millions of online discussions about large cap stocks, but also safeguards to favor only companies with broad and diverse discussions as measured over a rolling four-quarter period. This helps eliminate noise from smaller cap stocks and fleeting trends in sentiment.
BUZZTR has outperformed the S&P 500® Index by over 115% since its current methodology went live in August of 2016. To help understand why BUZZTR has been successful, we turn to factor-based analysis. The chart below demonstrates the excess performance of BUZZTR relative to the S&P 500 Index. As you can see, stock-specific risks are by far the largest contributor to BUZZTR’s outperformance. Factor risk contributed to performance, but much less so than stock specific risks.
Security Selection Dominated
8/16/2016 – 2/28/2021
Source: FactSet. BUZZTR Index vs. S&P 500 Index. Factors based on Axioma Risk Models. Performance data quoted represents past performance. Past performance is not a guarantee of future results. Index performance is not illustrative of fund performance. Figures are gross of fees, holdings-based, and do not factor in transactions and therefore estimates only. Portfolio holdings may change over time. See bottom of page for important definitions. For illustrative purposes only. For fund performance current to the most recent month-end, visit www.vaneck.com.
The following chart shows the top and bottom contributors to performance over this period and illustrates that BUZZTR had its fair share of winners. Many of those were popular innovative growth companies, such as Tesla, Advanced Micro Devices and Plug Power.
Top Stock Winners Outpace Detractors
8/16/2016 – 2/28/2021
Source: FactSet. BUZZTR Index vs. S&P 500 Index. Factors based on Axioma Risk Models. Performance data quoted represents past performance. Past performance is not a guarantee of future results. Index performance is not illustrative of fund performance. Figures are gross of fees, holdings-based, and do not factor in transactions and therefore estimates only. Portfolio holdings may change over time. See bottom of page for important definitions. For illustrative purposes only. This is not an offer to buy or sell, or recommendation to buy or sell any of the securities mentioned herein. For fund performance current to the most recent month-end, visit www.vaneck.com.
Of the style factors, we can see that exposure to both, momentum and growth were positive contributors to performance and that volatility was the largest detractor from performance. BUZZTR has historically been overweight in both growth and medium-term momentum, which were strong performing factors, and overweight volatility, which was a weak performing factor.
Style Factor Contributors
8/16/2016 – 2/28/2021
Source: FactSet. BUZZTR Index vs. S&P 500 Index. Factors based on Axioma Risk Models. Performance data quoted represents past performance. Past performance is not a guarantee of future results. Index performance is not illustrative of fund performance. Figures are gross of fees, holdings-based, and do not factor in transactions and therefore estimates only. Portfolio holdings may change over time. See bottom of page for important definitions. For illustrative purposes only. For fund performance current to the most recent month-end, visit www.vaneck.com.
Interestingly, following the market crash in 2020, the BUZZTR has not been consistently overweight in growth, as a factor. The teal bars in the chart below illustrate this.
Growth Factor Exposure
8/16/2016 – 2/28/2021
Source: FactSet. BUZZTR Index vs. S&P 500 Index. Factors based on Axioma Risk Models. Performance data quoted represents past performance. Past performance is not a guarantee of future results. Index performance is not illustrative of fund performance. Figures are gross of fees, holdings-based, and do not factor in transactions and therefore estimates only. Portfolio holdings may change over time. See bottom of page for important definitions. For illustrative purposes only. For fund performance current to the most recent month-end, visit www.vaneck.com.
While technology stocks have continued to lead BUZZTR in recent periods, re-opening trade with consumer-focused companies, like Carnival and Disney, and vaccine companies, such as Novavax and Moderna has also been beneficial. These positions highlight how the index’s methodology is well suited to adapt to different market environments and is a key reason why we believe that the VanEck Vectors Social Sentiment ETF offers investors the ability to benefit from the growing importance of social sentiment in the marketplace.
Originally published by VanEck, 3/31/21
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.
This is not an offer to buy or sell, or a 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 click here.
Risk Factor Attribution is a performance attribution model that utilizes a factor-based risk model to compare a portfolio’s excess return attributed to the different risk groups compared to a benchmark. Excess returns are decomposed to active risk factor exposures, into a Risk Factors Effect (systematic), and a Stock Specific Effect (stock selection). Risk Factor Effect represents the returns explained by traditional factors such as quality, growth, value, and momentum. Stock Specific Effect represents the portion of returns not explained by the traditional factors included in the analysis. Total Effect is the sum of all effects. The total effect represents the opportunity cost of your investment decisions in a group relative to the overall benchmark. Active Factor Exposure is defined as the difference between the index factor exposure and the underlying index factor exposure.
Factor Effect represents the returns explained by traditional factors such as quality, growth, value, and momentum.
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.
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An investment in the VanEck Vectors Social Sentiment ETF (BUZZ) 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.
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