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A Surprising Perk of Putting Social Sentiment on Your Side

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As has been widely documented, using social sentiment to glean insight about potential movements by individual stocks has been around almost as long as social media itself. Investors that are new to social sentiment and its applications may be surprised to learn that many of the early adopters of social sentiment in the financial markets were high level, sophisticated market participants, including hedge funds and institutional investors.

Today, there are expensive software programs used to mine social sentiment and high-fee hedge funds1 dedicated to social sentiment stock picking. In other words, investing using social sentiment is not a far-flung idea; it is widely accepted and happening every day.

Novice investors and those new to social sentiment likely have some assumptions about the strategy. Primarily, an investor that spends even just a few minutes on forums such StockTwits, Twitter or Yahoo! Finance is likely to come away thinking that social sentiment strategies are heavily rooted in growth and momentum stocks, such as Amazon.com Inc. (AMZN), Facebook Inc. (FB) or Netflix, Inc. (NFLX).

That assumption is not unreasonable and it is true that three aforementioned stocks command plenty of attention from the mainstream financial press as well as within social media circles. However, the BUZZ NextGen AI US Sentiment Leaders Index is factor and sector agnostic.

Delving Into The Strategy

The objective of the BUZZ NextGen AI US Sentiment Leaders Index is to unearth the 75 domestic large caps exhibiting “the highest degree of positive investor sentiment and bullish perception,” according to the index provider.2

There is nothing in that statement about specific allocations to Internet or technology stocks or favoring growth stocks over value names. Consider this: while the Dow Jones Industrial Average has added more technology exposure over the years, the index is home to some of the largest, most venerable companies in Corporate America. Some of the Dow’s components can be seen as growth fare, many are value stocks and all are dividend payers. The point is 18 of the 30 Dow stocks also reside in the BUZZ NextGen AI US Sentiment Leaders Index.

Yes, the BUZZ NextGen AI US Sentiment Leaders Index currently features significant technology exposure as about a third of its components hail from that sector, but the index’s defensive positioning may surprise investors. As of January 19, nearly a dozen of the BUZZ NextGen AI US Sentiment Leaders Index’s member firms come from the defensive consumer staples and healthcare sectors.

The BUZZ NextGen AI US Sentiment Leaders Index rebalances monthly to reflect changes in social sentiment and to ensure its components are the 75 names garnering the most positive mentions on social media. In December 2018, ditched some growthier fare, such as Facebook, and added some defensive names, including Altria Group Inc. (MO).3

Accessible And Efficient

The BUZZ US Sentiment Leaders ETF (BUZ), which tracks the BUZZ NextGen AI US Sentiment Leaders Index, brings social sentiment investing to a broader range of market participants and makes the concept accessible for ordinary investors.

While past performance is never a guarantee of future returns, BUZ has topped the S&P 500 and the Nasdaq-100 Index since the start of 2018.

1 Source: Wall Street Journal July 6, 2015 https://www.wsj.com/articles/tweets-give-birds-eye-view-of-stocks-1436128047
2 Source: Buzz Indexes http://buzzindexes.com/
3 Source: Buzz Index Changes http://buzzindexes.com/wordpress/wp-content/uploads/2019/01/BUZZ-December-2018-Monthly-Index-Rebalance.pdf
Disclosure:
An investor should consider the investment objectives, risks, charges and expenses carefully before investing. To obtain a prospectus which contain this and other information call 844.234.5852 or visit www.alpsfunds.com. Read the prospectus 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.
Social Sentiment- An indicator used to gauge investors opinions of different companies using their comments throughout the social media landscape.
Basis point- A unit of measurement to describe on hundredth of one percent
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.
S&P 500 Index – The S&P 500® is widely regarded as the best single gauge of large-cap U.S. equities and serves as the foundation for a wide range of investment products. The index includes 500 leading companies and captures approximately 80% coverage of available market capitalization.
Nasdaq 100 Index – The NASDAQ-100 Index is a modified capitalization-weighted index of the 100 largest and most active non-financial domestic and international issues listed on the NASDAQ. No security can have more than a 24% weighting.
One may not invest directly in an index.
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.
BUZ000196 12/31/2019
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