With the advent of smartphone applications, it’s difficult to get away from social media. The majority of today’s retail investors are bombarded with social media influences on a daily basis. ETF provider VanEck has sniffed out an opportunity with the creation of the VanEck Vectors Social Sentiment ETF.
With all the hype surrounding the Reddit user forum WallStreetBets, the timing couldn’t be more auspicious. Since the GameStop debacle that saw retail traders associated with the forum short squeeze hedge fund positions and cause catastrophic losses, the capital markets are giving sentiment trading via social media a closer look.
The hype is even spawning job positions related to sentiment trading. As such, based on the SEC filing, the VanEck ETF will track the Sentiment Leaders Index.
“The Sentiment Leaders Index provider relies heavily on social media analytics, which are relatively new and untested,” the filing said. “‘Social media’ is an umbrella term that encompasses various activities that integrate technology, social interaction and content creation. 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.”
“The Sentiment Leaders Index is comprised of common stocks of U.S. companies selected by a rules-based quantitative methodology developed by BUZZ Indexes Inc. (the ‘Index Provider’), which is designed to identify the U.S. common stocks with the most “positive insights” collected from online sources including social media, news articles, blog posts and other alternative datasets,” the filing said further. “’Positive insights’ are a measure of the degree of positive company sentiment as well as the breadth of active discussion about each company by participants on online platforms.”
The Social Medium Is The Message
While there are strategies related to fundamental and technical analysis or a combination of both mindsets, this particular approach emphasizes the strength of social media. If anything was gleaned from the recent Reddit news, it’s that retail investors do have a voice.
The ETF concept itself is not entirely new. Rather, it’s a reincarnation of a fund tracking the Buzz NextGen AI US Sentiment Leaders Index, which shut down in March 2019, per a Financial Times report.
“There is much more acceptance of the idea that there is a broad investment community out there and they do have interesting things to say,” said Jamie Wise, a Toronto-based hedge fund manager and chief executive of Periscope Capital, which created the index, according to the aforementioned report.
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