An ETF Where Social Sentiment and Investing Meet
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.
This Is the Best We Can Get With a Booming Job Market? Something Just Isn’t Right
While big job gains are making all the headlines, we see credit card delinquencies at a level last seen in the depths of the Financial Crisis and retail sales contracting over the past three months. This is the best we can get with a booming job market? Something here just isn’t adding up.
The week started off strong out of the gate on Monday in the wake of Friday’s post-payroll rally, but the momentum quickly faded, leaving the S&P 500 down four consecutive days as of Thursday’s close. If it closes in the red again Friday, it will be the longest losing streak in over 16 months going back October 31st, 2016. We dug into the details of the recent data and in this week’s edition, we point out some things that are just not adding up.
Wednesday the Industrials sector fell below its 50-day moving average with Boeing (BA) leading the decline as the weakest performer in the Dow, also falling below its 50-day moving average. In the Materials sector Century Aluminum (CENX) fell below its 50-day moving average to lead metals lower. DowDupont (DWDP) also failed to rise above its 50-day moving average. Thursday the Dow Transports sector followed Industrials, falling below its 50-day moving average and finding resistance at its late February peak.
The strongest performing S&P 500 sector over the past five days has been Utilities, followed by Real Estate – not exactly typical bull market leaders. After having experienced one of the strongest starts to a year, the S&P 500 is up less than 3% from December’s close and ended Thursday below its 50-day moving average. Technology has been the only sector to reach a new record high, but its technical indicators are starting to weaken, so this one looks to be over-extended. By Thursday’s open the percent of stocks in the S&P 500 trading above their 50-day moving average was down to 43% with over 22% of stocks in oversold territory and 21% in overbought.
US 10-year Treasury yield broke above its 100-month moving average in November of last year for the first time since July 2007 and hasn’t looked back. That being said, while the yield for the 10-year recently peaked on February 21st at just shy of 3% and has fallen roughly 12 basis points since then, the S&P 500 hasn’t been able to make much progress.
Meanwhile, no one seems to be talking about how we are seeing flattening in the yield curve.
February Retail Sales were weaker than expected, declining for the third consecutive month, the longest such streak in three years. Then again, the month-over-month change in average hourly earnings for all employees has been either flat or negative in 6 of the past 7 months and in the fourth quarter of 2017, consumers racked up credit card debt at the fastest pace in 30 years - bad for consumer spending, but rather confirming for our Cash-strapped Consumer investing theme. Most concerning is that credit card delinquencies at smaller banks have reach levels not seen since the depths of the Great Recession.
Homebuilder sentiment, after reaching the highest level since 1999 this past December, has now declined for 3 consecutive months, but even so, it still remains at nearly the highest levels since the financial crisis. Meanwhile, the NAHB Housing Market Index has fallen 17% from the January 22nd high and its most recent report found a significant downturn in traffic, perhaps due to rising mortgage rates as the 30-year fixed rate has reached the highest level in over 4 years. Perhaps the weakness has something to do with the aforementioned lack of wage growth as the ratio of the average new home price to per capita income has again reached the prior peak of 7.5x – people just can’t afford it.
We’ve been warning of the dangers of exuberant expectations for a while here at Tematica. The General Business Conditions Average for manufacturing from the Philadelphia & New York Fed this week illustrated just why we have. The two saw a small uptick in March after having been weakening in recent months. However, the outlook portion, which had been looking better in the past is now showing some weakness. For example, CapEx expectations 6-months out fell in March from the highest levels on record in February. Expectations around Shipments also dropped, having been at the second-highest levels of the current expansion. After having reached extreme levels in November, New Order expectations also declined. When sentiment expectations reach new highs, tough to continue to rise significantly from there.
While Friday’s job report got the markets all excited, perhaps the reason that enthusiasm has cooled is folks are realizing that the 50k gain in retail jobs isn’t syncing up with the -4.4% SAAR decline in retail sales over the past three months. Then there is what we are hearing from the horses’ mouth. Walmart (WMT) and Target (TGT) both issued weak guidance, as did Kroger (KR) who also suffered from shrinking margins. A tight and tightening job market is unlikely to help with that. Costco (COST) missed on EPS, as did Dollar Tree Stores (DLTR), who also missed on EPS and gave weaker guidance. Big Lots (BIG) saw a decline in same-store sales. At the other end of the spectrum, the 70k gain in construction is in conflict with rising mortgage rates, traffic and declining pending home sales, while the 31k gain in manufacturing has to face a dollar that is no longer declining, high costs on tariff-related goods and potentially some sort of trade war.
As I mentioned above, while real retail sales fell -4.4% SAAR over the past three months, Core Consumer Prices rose 3.1% SAAR and Wednesday’s Producer Price Index (PPI) report from the Bureau of Labor Statistics also showed rising inflation pressures. Core PPI (yoy) has reached its highest levels since 2011 with the annualized 3-month trend having gone from 1.5% last summer, to 2.7% at the end of 2017 to 3.4% based on the latest data.
Import prices for February rose 0.4%, taking the year-over-year trend up to 3.5% from 3.4%. Recall that last summer this was around 1%. Ex-fuel the pace rose to 2.1% from 1.8% previously and 0.8% over the summer.
The bottom line this week is that we are no longer in the easy peasy 2017 world of hyper-low volatility and relentlessly rising indices with a VIX that has found a new normal more than 50% above last year’s average. The wind up is the major market indices haven’t been able to commit to a sustained direction. The hope and promises of 2017 have been priced in, leaving us with a, “So now what?” which is reflected in the Atlanta Fed’s GDPNow forecast falling from 5.4% on February 1st to a measly 1.8% on March 16th – talk about a serious fade.
What has us really concerned is that at a time when big job gains are making all the headlines we see credit card delinquencies at the level last seen in the depths of the Financial Crisis and retail sales contracting at a 4.4% annual rate over the past three months. This is the best we can get with a booming job market? Something here just isn’t right
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