‘BUZZ’ ETF: White Noise Or Right Noise?

New fund is using public social media sentiment as an investment indicator.

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Editor-in-Chief
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Reviewed by: Drew Voros
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Edited by: Drew Voros

Jamie Wise

Measuring stock market sentiment has been both a pursuit of many—from traders to academia—and a holy grail of sorts. There’s a train of thought that investors are influenced by sentiment, despite fundamentals, and that to bet against investor sentiment can be risky.

Market sentiment indicators are used all the time: VIX, high/low index, bullish percent index, moving averages, etc. And while those give the overall flavor of the market’s tenor—bullish, bearish, lukewarm—selecting individual stocks based on sentiment has been an impossible knot.

Now, thanks to the internet, singular thoughts and idea are more easily captured—a silver or rusted lining depending on your viewpoint. And by screening for stock tickers using hashtags on social media sites like Twitter and Stocktwits, one index provider believes it has built a better sentiment mousetrap as the internet matures into adulthood.
 

‘BUZZ’ Is Back

This month, the VanEck Vectors Social Sentiment ETF (BUZZ) was launched, and did so with a bang. The fund has gathered $500 million in assets in two weeks, thanks to circuslike environment the fund was launched under.

David Portnoy, founder of Barstool Sports and the newest market gadfly, is one of the financial backers of BUZZ and its index created by Buzz Holdings. And he took to Twitter to pitch BUZZ’s launch in car-salesman style to the delight of his followers and the public, and to the horror of the Wall Street “suits.”

But as the Portnoy publicity circus has died down and a half-billion dollars has been entrusted to the fund to make money for its investors, we thought it was time to sit down with Jamie Wise, CEO of Buzz Holdings, who has been developing BUZZ’s index to measure sentiment on individual stocks.

The first go-round for “BUZZ” was in 2016, with the launch of the Sprott Buzz Social Media Insights ETF (BUZ). It was among the first ETFs to rely on artificial intelligence in its underlying index, but it closed in 2019 with a scant $10 million in AUM after three years. Maybe BUZ was ahead of its time five years ago, or maybe just not having a Portnoy publicity machine made the difference.

But as one of the fastest-growing funds in the history of U.S.-listed ETFs, “BUZZ” looks like it will be circling for a while.

ETF.com: The index behind “BUZZ” (the BUZZ NextGen AI US Sentiment Leaders Index) has been your passion and life’s work. What’s the story?

Jamie Wise: “BUZZ” really started because I saw people on social media platforms [I use]—namely Stocktwits and Twitter—talking about stocks. At first I had a misconception that probably the people talking on Twitter or Stocktwits are only talking about super-risky, high growth, to-the-moon-type stocks.

But then, once I peeled that first layer back, I realized there was real thread of diversity to the conversation, and wouldn't it be interesting to sort of get a read of the temperature of that conversation?

Sentiment has always been something that fascinated me. You’re trained in the investment world to think of sentiment as something contrarian. The problem is, it was never measurable. You have all these polls, and we know the problems with the polling. We have all these proxy indicators that people could point to, whether it was the VIX, or put/call ratios, things of that nature, but that’s more on a macro level.

When it came to stock-specific sentiment, it was really just someone's opinion on CNBC, frankly. I could get on a show, and pick up the microphone, and say, “Sentiment in XYZ stock is high or low.” But really, they have no data to confirm that, other than maybe conversations that person had with their own network, or they're looking at a stock chart, or what have you.

Back in 2014, we started the project to measure sentiment at the individual-security level.

ETF.com Would it be fair to say you're really measuring social media that's focused on stocks?

Wise: Yes. Ten years ago or so, this kind of communication didn't exist. Yes, there were the early online chat boards and message boards. They were very focused on maybe a handful of stocks. And the diversity of people on those things was unbelievably low.

It would have been nice to say, “Yeah, there's 10, 15, 20 years of history, since the internet has been around, there’ve been people talking about stocks on the internet in a broad and diverse way,” but that's just not the case at all.

You don't get any real data until the early part of the 2010s. And even then, it's much, much narrow than it is today. By 2015, though, it was robust. We were looking at 2 million posts a month that our algorithms were processing back when the “BUZ” first launched, which we thought was a lot of data then.

Today we’re looking at more than 20 million posts a month. There’s been just unbelievable growth and message volume, and participants, and diversity of opinions and diversity of trading styles. All of those things help to represent the collective, which just gives a wider lens for us to screen for potential sentiment names.

ETF.com: What were the top 10 holdings when you closed BUZ? And what were the top 10 holdings when you just opened BUZZ?

Wise: They're definitely not going to be the same. And it's not because the models have changed. It's more just the diversity of stocks being talked about.

February 2019 Rebalance - BUZZ Index Constituents

CompanyTickerWeight
Advanced Micro Devices IncAMD3.00%
Tesla IncTSLA3.00%
Facebook IncFB3.00%
Canopy Growth CorpCGC3.00%
Amazon.com IncAMZN3.00%
Apple IncAAPL3.00%
General Electric CoGE3.00%
Square IncSQ3.00%
Microsoft CorpMSFT3.00%
Boeing Co/TheBA2.67%
Visa IncV2.53%
Alphabet IncGOOGL2.51%
BlackRock IncBLK2.47%
Snap IncSNAP2.41%
NVIDIA CorpNVDA2.23%
Twitter IncTWTR2.13%
Micron Technology IncMU2.03%
Bank of America CorpBAC1.98%
Walt Disney Co/TheDIS1.96%
Activision Blizzard IncATVI1.88%
Goldman Sachs Group Inc/TheGS1.86%
Starbucks CorpSBUX1.52%
Electronic Arts IncEA1.43%
International Business MachineIBM1.31%
Bausch Health Cos IncBHC1.29%
General Motors CoGM1.21%
Twilio IncTWLO1.18%
PayPal Holdings IncPYPL1.13%
Exxon Mobil CorpXOM1.12%
Take-Two Interactive SoftwareTTWO1.11%
Ford Motor CoF1.10%
Xilinx IncXLNX1.09%
TE Connectivity LtdTEL1.04%
CVS Health CorpCVS1.03%
Macy's IncM1.03%
AT&T IncT1.02%
Shopify IncSHOP1.02%
Merck & Co IncMRK0.99%
Exelixis IncEXEL0.94%
Cisco Systems IncCSCO0.93%
Walmart IncWMT0.93%
ServiceNow IncNOW0.92%
Intel CorpINTC0.90%
eBay IncEBAY0.90%
Bristol-Myers Squibb CoBMY0.89%
Discover Financial ServicesDFS0.87%
T-Mobile US IncTMUS0.87%
Verizon Communications IncVZ0.79%
Lam Research CorpLRCX0.78%
American Airlines Group IncAAL0.78%
Gilead Sciences IncGILD0.77%
Citigroup IncC0.75%
Chevron CorpCVX0.75%
Pfizer IncPFE0.74%
Mastercard IncMA0.71%
Under Armour IncUAA0.70%
Match Group IncMTCH0.70%
Altria Group IncMO0.69%
GrubHub IncGRUB0.69%
JPMorgan Chase & CoJPM0.68%
Lululemon Athletica IncLULU0.67%
AbbVie IncABBV0.67%
QUALCOMM IncQCOM0.67%
Eli Lilly & CoLLY0.64%
Johnson & JohnsonJNJ0.63%
Wynn Resorts LtdWYNN0.61%
Skyworks Solutions IncSWKS0.60%
Regeneron Pharmaceuticals IncREGN0.60%
United Technologies CorpUTX0.59%
Tableau Software IncDATA0.58%
Coca-Cola Co/TheKO0.58%
Expedia Group IncEXPE0.56%
Comcast CorpCMCSA0.56%
Agilent Technologies IncA0.55%
Lockheed Martin CorpLMT0.54%
  100.00%

 

February 2021 Rebalance - BUZZ Index Constituents

CompanyTickerWeight
Tesla IncTSLA3.00%
Apple IncAAPL3.00%
Virgin Galactic Holdings IncSPCE3.00%
Advanced Micro Devices IncAMD3.00%
Amazon.com IncAMZN3.00%
Twitter IncTWTR3.00%
Facebook IncFB3.00%
Plug Power IncPLUG3.00%
Ford Motor CoF3.00%
Novavax IncNVAX3.00%
DraftKings IncDKNG3.00%
Netflix IncNFLX2.74%
American Airlines Group IncAAL2.27%
Microsoft CorpMSFT2.23%
Zoom Video Communications IncZM2.12%
Pfizer IncPFE2.11%
Pinterest IncPINS2.05%
Moderna IncMRNA1.90%
Boeing Co/TheBA1.87%
Walt Disney Co/TheDIS1.86%
Penn National Gaming IncPENN1.82%
Snap IncSNAP1.57%
Square IncSQ1.54%
ON Semiconductor CorpON1.51%
Bausch Health Cos IncBHC1.51%
NVIDIA CorpNVDA1.46%
Intel CorpINTC1.45%
General Motors CoGM1.41%
Nikola CorpNKLA1.39%
General Electric CoGE1.27%
Alphabet IncGOOGL1.26%
Peloton Interactive IncPTON1.24%
PayPal Holdings IncPYPL1.23%
Beyond Meat IncBYND1.18%
Uber Technologies IncUBER1.06%
Johnson & JohnsonJNJ1.04%
salesforce.com IncCRM1.02%
JPMorgan Chase & CoJPM1.02%
Barrick Gold CorpGOLD1.02%
Roku IncROKU0.98%
Exxon Mobil CorpXOM0.94%
AT&T IncT0.90%
QUALCOMM IncQCOM0.88%
Digital Turbine IncAPPS0.88%
Goldman Sachs Group Inc/TheGS0.84%
Shopify IncSHOP0.80%
Enphase Energy IncENPH0.80%
Carnival CorpCCL0.76%
Teladoc Health IncTDOC0.75%
Coty IncCOTY0.74%
Bank of America CorpBAC0.72%
Walmart IncWMT0.70%
Fastly IncFSLY0.69%
Coca-Cola Co/TheKO0.68%
Zynga IncZNGA0.67%
BlackRock IncBLK0.64%
Visa IncV0.62%
Morgan StanleyMS0.61%
International Business MachineIBM0.61%
TG Therapeutics IncTGTX0.58%
Wells Fargo & CoWFC0.57%
Etsy IncETSY0.53%
Cleveland-Cliffs IncCLF0.53%
Simon Property Group IncSPG0.50%
Starbucks CorpSBUX0.50%
Hyatt Hotels CorpH0.49%
Cloudflare IncNET0.47%
Sarepta Therapeutics IncSRPT0.46%
CVS Health CorpCVS0.45%
Caterpillar IncCAT0.45%
CRISPR Therapeutics AGCRSP0.45%
Activision Blizzard IncATVI0.44%
Gilead Sciences IncGILD0.41%
Chewy IncCHWY0.41%
Seagate Technology PLCSTX0.40%
  100.00%

 

The most important difference between then and now is the investment industry understands that the social media platforms are a real thing. It's not a gimmicky thing, and it's not a promotional thing.

We heard a lot of, “Why do I care what Sally from Indiana has to say about Microsoft?” And we always champion that answer with, “Sally and the millions of others like her are a lot smarter than you give them credit for. And they have tools and assets to research, and really push each other. And collectively, they can make really good decisions.”

People sort of scoffed at that. That was a long traditional bias of investment professionals. I think that was absolutely the case five years ago. Today people have a much more open mind with respect to understanding that, collectively, these communities are probably a lot smarter than they give them credit for, historically.

ETF.com: Why is GameStop not included in the index? It would seem to be the poster child for this kind of screener.

Wise: As per the index guideline, there is a multistep process to determine if a stock is eligible to be considered for inclusion in the BUZZ Index. The eligibility determination occurs quarterly, and the list of eligible stocks remains in effect until the next quarterly determination, through three monthly rebalances. To be eligible for inclusion, a stock must meet the following criteria:

  • Security must be a common stock traded on a major U.S. exchange
  • Security must have a minimum market capitalization of at least $5 billion
  • Security must have a three-month minimum average daily trading volume of at least $1 million

GME failed to meet the $5 billion market cap on the January eligible universe screen. The next eligible universe screen occurs on April 1. To qualify as eligible, a security must meet a minimum-mentions threshold that incorporates a rolling four-quarter review of “mentions” data.

ETF.com: Who owns this index?

Wise: BUZZ Holdings is the entity that owns the index. We are the creators of the IP [intellectual property]. BUZZ Holdings has the right to license use of that index for investment vehicles. That’s the relationship that BUZZ Holdings currently has with VanEck [and Portnoy].

Drew Voros can be reached at [email protected]

Drew Voros has nearly 30 years' experience in financial journalism. He was a longtime business editor for the Oakland Tribune and sister papers of the Bay Area News Group, and finance writer for the Hollywood trade publication Variety. Voros' past roles have also included editor-in-chief at etf.com and ETF Report.