A couple of weeks ago, I highlighted the newly minted VanEck Vectors Social Sentiment ETF (NYSEARCA:BUZZ) about a week after the much ballyhooed exchange traded fund came to market.
I noted that while BUZZ refreshes an old idea that previously struggled to gain a following with advisors and investors, the concept is, nonetheless, relevant and potentially potent. When that piece was published, the new ETF was hovering $283 million in assets under management – an undoubtedly impressive tally for week-old fund. As of March 23, that figure is approaching $411 million, easily making the VanEck offering one of the most successful ETFs to debut in the first three months of 2021.
Advisors with extensive experience in ETFs well know that a fund's AUM is no more than a superficial metric. Plenty of ETFs with strong returns are small in AUM terms. Plenty that are popular by assets consistently deliver middling performances.
For advisors, the relevance in any ETF's AUM largely boils down to access. Many of the platforms advisors use to transact in ETFs keep smaller funds – usually those below $100 million in assets – on the outside looking in. Clearly, BUZZ doesn't have that problem and that's relevant because...
...BUZZ Merits Some Consideration
As I pointed out in my initial examination of BUZZ, the fund tracks the BUZZ NextGen AI US Sentiment Leaders Index (BUZZTR). That benchmark is a collection of 75 stocks displaying the most positive sentiment in internet forums, online media sites and social media.
The concept is credible – hedge funds and other institutional investors have long engaged in social sentiment investing. It's relevant. The Reddit traders and the GameStop (NYSE:GME) hoopla prove as much. All that said, BUZZ isn't going to be a linchpin in many clients' portfolios. That doesn't mean advisors should scoff at the fund, either.
In fact, BUZZ is already generating, well, buzz among the younger client bases advisors crave with many saying they're fielding inquiries about the new fund.
Millennials “understand the new digital world we are in, and they’re comfortable with sharing photos, personal moments and ideas online,” writes Ed Lopez, VanEck head of ETF product. “Like the advisors calling in, it may make good business sense to explore an idea that may resonate with millennial investors, particularly if the strategy is sound. Being open to BUZZ is a great way to stay relevant with younger clients. If you are a millennial advisor, you likely already understand this.”
Another perk of BUZZ for advisors is that although its holdings change based on social sentiment scoring, its lineup is often conducive to being a conversation starter. Translation: Expect BUZZ to frequently hold at least a few “story” stocks.
“As an advisor, you’ll have new stock stories to talk about each month, and your client doesn’t have to trade in and out of stocks, potentially incurring taxes and subjecting themselves to their own human emotions and biases,” adds Lopez. “That said, the high turnover strategy of the index, even in an ETF, may have the potential to incur taxable capital gains, but the ETF structure is far better for this kind of strategy than a mutual fund wrapper or trading individual stocks.”
Collective Conviction Over Collective Wisdom
It's often said that funds weighted by market capitalization reflect the market's collective wisdom. If that's true, then it can also be said BUZZ is an avenue for tapping into collective conviction.
“Collective conviction” may not be everyday market vernacular. It may never be, but there's something to the BUZZ strategy. Data confirm as much and that's another talking point for advisors.
“Over the last five years, the index experienced an upside capture ratio of 131 versus the S&P 500. This means it captured 31% more return in up markets,” notes Lopez. “Its downside capture ratio of just 99.72 means it experienced approximately the same amount of return in down markets as the S&P 500, maybe performing just a hair better.”