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How The Dave Portnoy-Backed Social Sentiment ETF Actually Works

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How The Dave Portnoy-Backed Social Sentiment ETF Actually Works

Jamie Wise, founder of BUZZ Holdings and president and CEO of Periscope Capital, recently joined Benzinga’s "The ETF Show." Wise discussed the new VanEck Vectors Social Sentiment ETF (NYSE: BUZZ), which began trading on March 4.

What Is BUZZ? The BUZZ ETF holds 75 stocks with at least a $5 billion market cap that are generating the most social media mentions. The ETF made headlines when influential Barstool Sports Founder Dave Portnoy announced his involvement.

The BUZZ ETF is new, but it's based on the Buzz NextGen AI U.S. Sentiment Leaders Index, which has been around since 2015.

“We look back over a rolling four-quarter period,” Wise said. “We want to identify sentiment shifts from a universe of stocks that are being talked about consistently day-in, day-out regardless of news flow, regardless of an earnings release.”

Each quarter, those criteria generate roughly 250 to 350 eligible stocks, and the index’s holdings will be updated monthly to include the 75 stocks in that group that have the highest positive sentiment over the previous month.

“The sentiment score is the secret sauce. That’s the algorithm. What we’ve done for many years now is build our own tools. They’re called natural language processing...It’s a model or algorithm that is able to read text and understand the sentiment behind it,” Wise said.

One of the challenges in updating the algorithm in recent years has been the rise in the use of emojis when discussing stocks. Wise said bear and rocket emojis weren’t commonplace in stock market social media discussions even one year ago.

Watch the full interview with Jamie in the clip below

Reddit's Influence: Reddit’s WallStreetBets has gotten a lot of attention in early 2021 for pumping up the share price of GameStop Corp (NYSE: GME), but Wise said Twitter, Inc. (NYSE: TWTR) and StockTwits are still the most important data sources from which to pull.

“What we find in those communities is that’s where you really find the breadth and diversity of conversation,” Wise said. “If you look at some of the other offshoot forums, and Reddit we’ve always viewed as one of those, it’s not nearly as diverse in terms of the number of stocks people are talking about. It’s always been a polarized environment in which there’s supercharged opinions about a narrow group of stocks being discussed that day.”

Wise said the influx of new retail traders in 2020 has sent the number of posts the algorithm analyzes in the average day soaring from around 2 million to about 20 million. Wise said the more data input the algorithm receives, the better its relative performance tends to be against the S&P 500.

Portnoy And VanEck On Board: When it comes to the launch of the VanEck BUZZ ETF, Wise said he had been in contact with VanEck for years prior to the recent launch.

“What I think finally gave them confidence to license its use for an ETF were those factors we saw transpiring throughout the year last year, the increased understanding of the broad investment community that online social platforms are a thing, and a little bit of debunking of the myth that individual investors are sheep with no real intelligence or independent thought,” Wise said.

Portnoy isn’t the only one that is paying attention to the new BUZZ ETF. In fact, it had the highest first-day trading volume of any ETF in history on its launch day earlier this month.

“The awareness of what we’re doing now in BUZZ has been greatly amplified by having Dave as part of our ownership group,” Wise said.

“When he decides to get involved with something, it’s for the right reasons. Dave is not a hired spokesperson...He strongly believes in the power of the internet and the communities of people that are talking about stocks.”

 

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