As the social media universe has grown and evolved, so have the options for investors looking to tap that growth. There are prosaic and unique approaches to the social media investment theme. For example, the Solactive Social Media Total Return Index takes a traditional view of social media investing and features large exposure to the likes of Twitter Inc. (TWTR) and Facebook Inc. (FB).
In other words, that index is an avenue toward social media stocks. But what about using social media sentiment to find potentially rewarding trades and investing ideas? Don’t scoff at the notion. Scores of hedge funds and other professional investors use data mining programs to scour social feeds to gauge sentiment on various securities. In fact, the Bloomberg Terminal has offered data sentiment analysis since 2010.1
The BUZZ NextGen AI US Sentiment Leaders Index, tracked by the BUZZ US Sentiment Leaders ETF (BUZ), makes social sentiment investing approachable and efficient for a broad range of advisors and everyday investors. The BUZZ NextGen AI US Sentiment Leaders Index uses artificial intelligence (AI) and natural language processing (NLP) capabilities to generate actionable insights from online investing sources as well as social feeds, such as Twitter.
No Sector Restrained
BUZ and its underlying index underscore the marquee differences between buying social media and using social media to generate investment ideas. Investors that buy a social media fund are likely making large bets on the likes of Facebook and Twitter, but the BUZ approach is sector agnostic, as the chart below indicates.
In that chart, the benchmark is the Russell 1000 Growth Index TR USD. BUZ’s significant overweight to technology stocks is not surprising when considering the likes of Apple Inc. (AAPL), Twitter and Microsoft Corp. (MSFT), all holdings in the fund, are frequently mentioned within the financial media and the social media community.
Likewise, the increase in cryptocurrency chatter has some stocks related to that theme occupying spots on the BUZ roster. For example, NVIDIA Corp. (NVDA) and Advanced Micro Devices (AMD), both of which make the graphics cards essential in the mining of digital currencies, are BUZ components.
Healthcare is another overweight relative to the Russell 1000 Growth benchmark. That may not be surprising when noting the sector is the third-largest sector weight in the S&P 500 and that the investment community is often buzzing about large-cap healthcare names as well as biotechnology stocks of varying market caps.
Another highlight of the sector agnostic advantage is materials. On the surface, materials may not be the sector investors think of when they think social sentiment buzziness, but BUZ’s allocation to materials jumped significantly at the end of the first quarter. Initially, the increased materials exposure was a burden for BUZ, but the sector is rebounding, contributing to BUZ outperforming the Russell 1000 Growth Index by 200 basis points year-to-date as of April 19th.
The AI Marriage
As was noted earlier, the BUZZ NextGen AI US Sentiment Leaders Index uses AI technologies as part of its methodology. On its own, AI has useful applications in investing, including the ability to process millions and millions of data points, many of which are practical for short-term trading decisions. However, its dependence on data without accounting for human emotion and/or error2 can create some drawbacks, too.
By adding social sentiment, which is mostly created by humans, the BUZZ NextGen AI US Sentiment Leaders Index offers a human touch to sentiment-based investing while potentially avoiding some of the disadvantages of strategies solely focused on AI and machine learning technologies.
1 Source: Bloomberg June 15, 2017 https://www.bloomberg.com/professional/blog/finding-novel-ways-trade-sentiment-data/
2 Source: New York Times Jan. 12, 2018 https://www.nytimes.com/2018/01/12/business/ai-investing-humans-dominating.html
This material must be preceded or accompanied by a prospectus. Please read it carefully before investing.
Standardized performance for the BUZZ US Sentiment Leaders ETF (BUZ) can be found here. Current holdings for BUZ can be found here.
BUZZ US Sentiment Leaders ETF shares are not individually redeemable. Investors buy and sell shares of the BUZZ US Sentiment Leaders ETF on a secondary market. Only market makers or “authorized participants” may trade directly with the Fund, typically in blocks of 50,000 shares.
The article references an indirect relationship between constituents in the fund and their relation to the cryptocurrency market. The portfolio does not represent an investment in cryptocurrencies. There are risks related to investing in cryptocurrencies. Please research carefully before investing.
The ability to invest based on social media analytics is relatively new and untested. The Fund may invest a significant portion of its assets in securities issued by companies in the information technology sector in order to track the Underlying index’s allocation to that sector.
These types of funds typically have a high portfolio turnover that could increase transaction costs and cause short-term capital gains to be realized.
The Fund is not suitable for all investors. There are risks involved with investing in ETFs including the loss of money. The Fund is considered non-diversified and can invest a greater portion of assets in securities of individual issuers than a diversified fund. As a result, changes in the market value of a single investment could cause greater fluctuations in share price than would occur in a diversified fund. Funds that emphasize investment in small/mid cap companies will generally experience grater price volatility. Diversification does not eliminate the risk of experiencing investment losses. ETFs are considered to have continuous liquidity because they allow for an individual to trade throughout the day.
Defined investment universe of US stocks – in order to be eligible for inclusion in the Underlying Index, a company’s stock must be traded on one or more major U.S. exchanges, have a minimum market capitalization of at least $5 billion, and have a 3 month minimum average daily trading volume of $1 million.
Investing in companies based on social media analytics involves the potential for market manipulation because social media posts may be made with an intent to inflate, or otherwise manipulate, the public perception of a stock or other investment.
Text and sentiment analysis of social media postings may prove inaccurate; that is, high positive sentiment may not correlate with negative change in the value of a company’s stock.
ALPS Advisors, Inc. (AAI) has engaged IRIS Werks, LLC (IRIS) to produce analysis and commentary on ALPS-advised ETFs. IRIS currently has a compensated business relationship with AAI. AAI nor APSD are affiliated with IRIS.
Artificial intelligence (AI) is the intelligence exhibited by machines or software. One of the central problems (or goals) of AI research include natural language processing which refers to the automation of language interpretation and generation.
BUZZ NextGen AI US Sentiment Leaders Index – identifies the 75 large cap US stocks which exhibit the highest degree of positive investor sentiment and bullish perception.
Russell 1000 Growth benchmark is composed of large and mid-capitalization U.S. equities that exhibit growth characteristics.
One may not invest directly in an index.
Solactive Social Media Total Return Index – The Solactive Social Media Index tracks the price movements in shares of companies which are active in the social media industry, including companies that provide social networking, file sharing, and other web-based media applications. A maximum of 50 components are included and weighted according to free float market capitalization. The index is calculated as a total return index in USD.
The content and opinions expressed in this article are that of the author and not the views and opinions of AAI. In addition, AAI assumes no responsibility to ensure the accuracy of the content written by the author.
There are risks involved with investing in ETFs including the loss of money. Additional information regarding the risks of this investment is available in the prospectus. Past Performance is not indicative of future results.
ALPS Portfolio Solutions Distributor, Inc., a FINRA member firm, is the distributor for the BUZZ US Sentiment Leaders ETF. AAI is affiliated with ALPS Portfolio Solutions Distributor, Inc.
The author is not an investment professional and this article should not be considered investment advice. While the information and statistical data contained herein are based on sources believed to be reliable, the author takes no responsibility to ensure the accuracy of the content. Additionally, this article should not be relied on or be the basis for an investment decision. Information that is historical is not indicative of future results, and subject to change.
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