MEME ETF Shutters as Thematic Funds Lose Luster

A meme-stock ETF issued by Roundhill Investments is closing nearly two years after its launch as it failed to bring in significant inflows or match the S&P 500.  

The Roundhill MEME ETF (MEME) will liquidate in December, according to Roundhill. The fund, which aimed to capitalize on the meme-stock craze that boomed during the pandemic, has floundered since its launch in December 2021. It brought in only about $2.6 million, and the fund is down 31% year to date.  

While niche thematic ETFs seek to offer exposure to a specific phenomenon or new craze, investors rarely see gains because fad-driven funds can be difficult to time correctly. According to a Morningstar research report, global thematic funds have gained about 7% overall over the past five years, but investors have seen only about 2.5% of those gains reflected in their portfolio. Other buzzy trends, such as a slew of metaverse ETFs and marijuana ETFs, have risen and fallen in popularity.  

“Thematics go through a cycle because it’s a compelling narrative and its intuitive to investors to buy these types of products,” said Bryan Armour, ETF analyst at Morningstar. “But then everyone realizes that they’re not a very effective long-term investment tool.”  

Meme-Stock Mania 

In 2021, retail investors shocked Wall Street as they collaborated on social platform Reddit to drive up the price of certain stocks, most notoriously GameStop Corp. Yet the fad has largely receded into the background. Roundhill’s MEME operated by scoring various securities by the amount of time they were mentioned on specific social-media platforms over a two-week period.  

Deborah Fuhr, managing partner and founder of research firm ETFGI, noted that investors who drove meme stocks were day trading during the pandemic. Now, with more regular work schedules, day traders no longer play as big a part in moving markets. “During COVID, a lot of people were at home using ETFs more as trading ideas as opposed to investment ideas,” Fuhr said.  

Yet not all thematic ETFs capture only fleeting momentum. Armour argued that a trend like artificial intelligence has staying power compared with meme stocks, which spoke to a very narrow audience.  

Another reason why MEME failed was simply its portfolio: The fund has sunk nearly 55% since its launch.  

Contact Lucy Brewster at [email protected].