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The so-called "meme" stocks have been all the rage in 2021. Fueled by intense social media attention, Robinhood and newer investors getting into stock trading for the first time, stocks that were completely off the radar as recently as a year ago, such as AMC Entertainment (AMC) and GameStop (GME), have drawn huge interest. Retail traders have driven these stock prices to the moon with the aim of sticking it to the big Wall Street hedge funds, who often short these names.

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source: Roundhill

source: Roundhill

As is often the case within the ETF industry, a new fund launched just this week to capture the trend. The Roundhill MEME ETF (MEME) will track an index that consists of 25 equal-weighted U.S. listed equity securities that exhibit a combination of elevated social media activity and high short interest.

Roundhill is perhaps the ideal ETF issuer to launch this type of product because it fits in so well with the rest of its lineup. The company already has the Roundhill BITKRAFT Esports & Digital Entertainment ETF (NERD), the Roundhill Sports Betting & iGaming ETF (BETZ), the Roundhill Pro Sports, Media & Apparel ETF (MVP) and, most recently, the red hot Roundhill Ball Metaverse ETF (META). Roundhill is quickly building itself up to be a major player in the thematic ETF space.

Roundhill MEME ETF

The focus on "elevated social media activity" and "high short interest" captures the essence of what places, such as the Wall Street Bets message board, are all about. It's not trying to redefine what has made meme stocks big in the first place, nor is it trying to add extra criteria to water down its exposure. It's simply aiming to identify the most popular names at any given moment. The fact that the index rebalances itself every two weeks allows it to also stay on top of any rapid sentiment changes.

The 25 holdings of the ETF include all of the names you'd expect to see, including AMC, GameStop, Robinhood, DraftKings and Palantir.

source: Roundhill

source: Roundhill

While I've seen many ETFs sort of miss the mark with the universe or theme they're trying to capture, I think MEME actually does a pretty good job of identifying what's popular within this crowd of traders. Outside of the equal-weighting of holdings, which I think makes a lot of sense, the fund makes no attempts to limit concentration or diversify in any way. It's simply identifying the hot meme stocks of the moment, which is exactly what a fund, such as MEME, should be doing. You essentially WANT the concentration that comes with a fund like this. The 0.69% expense ratio is about in line with what I'd expect.

I suppose it goes without saying that investors in MEME should expect volatility. If there's a drawback, it might be that the meme stock craze likely peaked earlier this year and much of the air in the balloon may have already deflated. The benchmark index for MEME has dropped more than 20% in just the past month and pullbacks like that could become relatively common.

Overall, I like the structure of MEME and how it's built and I think Roundhill is making another nice addition to its lineup. Whether that translates into big investor returns remains to be seen.

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