Dave Portnoy, the founder of the popular sports and pop culture website, Barstool Sports, is getting into the ETF business.
No, he's not launching an ETF himself. He'll be lending his likeness and marketing muscle to the soon-to-be launched VanEck Social Sentiment ETF (BUZZ). The ETF is expected to launch on Thursday and it will track the BUZZ NextGen AI US Sentiment Leaders Index.
Before we get into Portnoy's partnership with VanEck on this ETF, let's discuss the fund itself on how it will work.
Here's Portnoy to describe it himself in his own unique way.
In essence, BUZZ will invest in the stocks that are receiving the most positive sentiment on the internet and social media. It does this by using an artificial intelligence natural language processing algorithm to scour the web for mentions.
We know that online sentiment has been a big driver of stock market performance lately. Look no further than what happened just recently with GameStop, AMC and other stocks targeted by Reddit traders. Not only did they drive those stock prices higher, the subsequent volatility generated by their trades brought the broader market down modestly in the process.
BUZZ believes it can capture that sentiment to create alpha for investors.
It'd be natural to assume that BUZZ would be heavy in growth and tech stocks, since that's what seems to get the most, well, buzz in the financial markets. It certainly has a tilt in that direction, but it's important to remember that it's using more sources than just Twitter and Reddit to get its information. There is a bit of diversity here (although relatively minor) beyond just the growth-oriented tech, communication services and consumer discretionary sectors.
The fund's underlying index has been around for several years, so we already know what's in the ETF.
BUZZ currently consists of essentially five sectors only - tech, consumer discretionary, communication services, healthcare and industrials. Just 10% of assets come from sectors outside of those five.
Here's how the portfolio's index currently looks. It holds 75 different names, but the top 7 are a virtual who's who in the tech space.
Tesla (TSLA), Apple (AAPL), Virgin Galactic (SPCE), Advanced Micro Devices (AMD), Amazon (AMZN), Twitter (TWTR) and Facebook (FB) have dominated the discussion for a while. Going down the list, you get a little more variety, but the top of the index looks a lot like an S&P 500 index fund.
Since the index essentially reconstitutes itself every month, there can be a fair amount of movement in and out of the index. Here's the changes that were made in February.
The most important question is can this strategy perform? Lots of fund launches are supported by backtests that indicate a fund usually would have performed very well over time and BUZZ is no different.
Since the index's launch roughly five years ago, BUZZ's 27% annualized returns would have run laps around the S&P 500. The Nasdaq 100 index may be a bit of a better proxy given BUZZ's large-cap tech tilt, but the fund's performance still would have been better over that time frame.
Now, while BUZZ's strategy seems well & good and Portnoy's presence and personality will likely bring a lot of light to this ETF, but I have a few thoughts.
First, this won't be the first social sentiment ETF ever launched. In fact, it's not even the first time this index has been used for an ETF!
Back in 2016, the BUZZ U.S. Sentiment Leaders ETF (BUZ) was launched. It tracked, you guessed it, the BUZZ NextGen AI US Sentiment Leaders Index, the same index that BUZZ will track. That fund lasted until 2019 when it was shut down.
What happened with BUZ? It just never caught on. You can see in the chart above that the performance has been solid. It used a stock picking methodology that was pretty unique at the time. It just never caught on. When it closed, it had less than $10 million in assets.
While I'm a bit skeptical that this will turn into a monster where it's predecessor didn't, Portnoy is the clear delineator here. He'll market this fund to a whole new universe of younger investors who weren't targeted the last time around. Plus, the heavy use of the internet and social media to pick stocks will be easily identifiable to potential shareholders. This will certainly do better a second time around.
There was also the CrowdInvest Wisdom ETF (WIZE), which actually let investors choose which stocks would go into the portfolio through the use of a mobile app. It lasted all of five months before it was shut down too due to lack of interest.
It won't be the first time that a well-known name ties himself to an ETF either. The registration for the Quincy Jones Streaming Music, Media & Entertainment ETF (QJ) was filed with the SEC back in 2017, but it never got approved as far as I know.
Here's the thing that has me a bit leery though. This thing seems like it's set up to run into legal issues.
This was my immediate snap reaction as well. If the fund only rebalances every month, does Portnoy have access to any insider information about the portfolio itself, especially since he's never been hesitant to share his thoughts online? I'm not suggesting that anything nefarious is at play here, but I would think the pencil pushers in legal would throw up a few more red flags. The SEC approved it and if they gave it the green light, I assume everything's OK but it just strikes me as a bit curious.
Either way, this is going to be a fascinating case study for the ETF marketplace. Outside of Cathie Wood, there's no real "celebrity" involved in the ETF market. Given Portnoy's marketing savvy, I expect BUZZ will blow up fairly quickly and it'll be a lot of fun to watch!