Thinking back to the early days of social media, you know when Myspace was still cool, it is fair to say that the original intent of social media was NOT to provide an avenue for potential success in financial markets.
Fast-forward to these more advanced days of social media and the intersection of social media sentiment and investing is increasingly mainstream. The BUZZ US Sentiment Leaders ETF (BUZ) is an exchange traded fund (ETF) that brings the idea of gauging social sentiment to find winning stocks to investors. Importantly, BUZ is an index fund (it tracks the BUZZ NextGen AI US Sentiment Leaders Index), meaning investors do not need to worry about culling social media data to find the best stocks on their own.
The BUZZ NextGen AI US Sentiment Leaders Index “applies proprietary machine learning models across vast large scale datasets to identify patterns, trends and changing sentiment which can affect market based outcomes, providing the foundation for superior investment returns,” according to BUZZ Indexes.
In plain English, the index’s artificial intelligence and machine learning technologies scour social media platforms, such as Facebook, LinkedIn and Twitter, as well as popular financial media sites, including Barron’s, CNBC and Yahoo! Finance, to build a portfolio of 75 U.S. large-cap stocks receiving bullish mentions and positive sentiment.
A Valid Idea
While scouring the social media landscape for winning investments was an idea once viewed as far flung and novel, an array of academic research and real world applications have validated this concept.
“Stock market prediction on the basis of public sentiments expressed on Twitter has been an intriguing field of research. Previous studies have concluded that the aggregate public mood collected from Twitter may well be correlated with Dow Jones Industrial Average Index (DJIA),” according to the 2016 research paper “Sentiment Analysis of Twitter Data for Predicting Stock Market Movements.”
More and more institutional investors and hedge funds are buying into the notion that social sentiment offers predictive advantages in financial markets.
“As investors, we have been trained to think of sentiment as a contrarian indicator, but intuitively, and academically, we know that sentiment has an important impact on equity valuations,” notes BUZZ Indexes. “In the short to medium term, it is widely agreed that sentiment is a key determining factor as to whether, by way of example, a stock trades at a 15 times multiple or a 20 times multiple.”
Investors should demand that a unique strategy, such as the one put forward by BUZ, offers material differences and advantages relative to traditional investments. BUZ is doing that. As the chart below indicates, BUZ has topped the S&P 500 by more than 600 basis points since the start of 2017.
While it is not unreasonable to think that the stocks generating the most buzz across the Internet are Internet and technology stocks, BUZ is not overly dependent on those groups. Yes, the FAANG quintet of Facebook Inc. (FB), Amazon.com Inc. (AMZN), Apple Inc. (AAPL), Netflix, Inc. (NFLX) and Google parent Alphabet Inc. (GOOGL) are all represented in BUZ’s lineup.
However, the five FAANG stocks combine for just 12.5% of BUZ’s roster and none of the ETF’s 75 holdings command a weight of more than 3.36%, indicating that that fund is relatively insulated from single stock risk.
Additionally, many investors may believe that the stocks getting the most online adulation are expensive as a result of all that positive sentiment. That is not necessarily the case as BUZ devotes 9.06% of its weight to the financial services sector, one of the few sectors currently viewed as attractively valued at this late stage of the current U.S. bull market.
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 866.675.2639 or visit www.alpsfunds.com. Read the prospectus carefully before investing.
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.
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 is not affiliated with IRIS.
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. 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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