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Meme ETF: A Few New Stocks That Have Meme Potential

AMC and GameStop are still some of the most popular stocks among retail investors. But Roundhill Investments sees “meme potential” in other names. Here they are.

Since December, Wall Street Memes has been tracking the composition of Roundhill Investments’ Meme ETF MEME, which changes every two weeks.

Today, we look at the top meme stocks of the moment, based on the investment manager’s criteria. While a few names are very familiar to most traders and investors, a couple of them have made it to the list for the first time.

Could they be the next stocks to head to the moon? Let’s take a closer look.

Figure 1: Meme ETF: A Few New Stocks That Have Meme Potential

Figure 1: Meme ETF: A Few New Stocks That Have Meme Potential

(Read more from Wall Street Memes: GME Stock After Earnings: It’s All Up To The Apes)

An overview of the Meme ETF

The Meme ETF has the goal of participating in the next meme wave by capitalizing on a couple of hot 2021 themes — that, to be fair, have not been profitable so far this year: (1) the increased participation of retail investors in the market and (2) the rise of social investing.

Yes, this could seem like a long shot. But I do not think that MEME is designed to produce smooth, positive returns consistently. Rather, it is looking to “head to the moon” when the conditions are right, as was the case with GameStop  (GME) - Get GameStop Corporation Report and AMC stock  (AMC) - Get AMC Entertainment Holdings Inc. Class A Report in 2021.

The stock-selection criteria used by Roundhill Investments can be summarized as follows:

  • Start with a large universe of stocks, and then assign a “social media activity score” to each. This process effectively selects stocks based on how popular they have been recently on the main social media platforms.
  • Separate the top 50 most popular stocks. Then, rank those based on short interest, with the most heavily shorted ones featuring on top. The ETF invests in the top 25 names.
  • Rinse and repeat every 14 days, refreshing the portfolio to capture the most recent trends in meme mania.

Since its December 2021 inception, MEME has produced pitiful returns: -40%, see graph below. But the market conditions have not helped either, as the S&P 500  (SPY) - Get S&P 500 ETF TRUST ETF Report and Nasdaq 100  (QQQ) - Get PowerShares QQQ Trust Ser 1 Report have also declined (just not as much) during the period.

Figure 2: MEME performance vs. SPY and QQQ.

Figure 2: MEME performance vs. SPY and QQQ.

Meme ETF’s current holdings

As one would expect, AMC and GME currently feature among MEME’s 25 stocks. However, they only account for 7% of the fund’s assets, suggesting a very diversified portfolio.

The top 5 holdings, combined, account for nearly one-fourth of the assets under management. Among these 5, one stands out to me: Bumble, Inc.  (BMBL) - Get Bumble Inc. Report is the largest holding at 4.9%.

Figure 3: MEME ETF: portfolio breakdown as of March 18.

Figure 3: MEME ETF: portfolio breakdown as of March 18.

I do not believe that I have ever seen BMBL mentioned as a meme stock. Shares of the online dating and social networking company have been down nearly 60% since the February 2021 IPO — i.e., in barely one year. Could a rebound be on the horizon?

Electric vehicle stocks also feature among MEME’s holdings: Rivian  (RIVN) - Get Rivian Automotive Inc. Report is the tenth largest and Lucid  (LCID) - Get Lucid Group Inc. Report is the fourteenth, while Nio  (NIO) - Get NIO Inc. American depositary shares each representing one Class A 蔚来汽车 Report is a top 5 name.

Regarding the former, we have recently discussed how Rivian has been failing to share results that support the bullish thesis. However, the upside potential here could be massive, even if speculative, considering the prospects of the EV industry.

NIO, another big player in the EV revolution, has been suffering also from the intense volatility in Chinese stocks. Shares have been down over 50% in the past year, but up a massive 45% in the past five days alone.

Some of the usual suspects also show up in the MEME portfolio: Donald Trump-linked Digital World Acquisition  (DWAC) , Draftkings  (DKNG) - Get DraftKings Inc. Report and Zoom  (ZM) - Get Zoom Video Communications Inc. Report. But the smallest holding stands out for being a newcomer: offshore driller Transocean RIG.

Once upon a time, drilling for oil and gas deep under water was a profitable business. But when crude oil prices plummeted during the COVID-19 crisis, so did the value of the major drillers.

RIG is a classic example. Despite the company being the leader in offshore drilling, this stock has been down an astounding 92% in the past decade. But so far in 2022, shares have climbed a massive 38% on the back of much higher oil prices.

Could RIG be the next meme story that makes its way to the moon? Stay tuned to find out.

Twitter speaks

The Meme ETF invests in 25 stocks that the fund manager believes to have “meme potential”. Of the following pairs of stocks held by MEME, which would you most likely own today?

(Disclaimers: this is not investment advice. The author may be long one or more stocks mentioned in this report. Also, the article may contain affiliate links. These partnerships do not influence editorial content. Thanks for supporting Wall Street Memes)