A growing number of academic research supports the notion that gauging social sentiment, a function performed by the BUZZ NextGen AI US Sentiment Leaders Index, can provide actionable investment ideas.
Improving artificial intelligence, machine learning and natural language processing technologies are making social sentiment more efficient, bolstering the ability of programs and software to effectively utilize the potentially predictive power of social networks, such as Facebook, Twitter and other online forums. Thanks to its ability to be seamlessly integrated into application programming interface (API) platforms, Twitter, which is gauged by the BUZZ NextGen AI US Sentiment Leaders Index, is fertile ground for mining social sentiment data.
“The brevity of Twitter content is a unique element that is not typical for other types of word-of-mouth (WOM) communication, but nevertheless contributes to concise evaluations that are perceived as unequivocal,” according to a research paper by The Journal of Finance and Data Science.1
Various studies confirm there are correlations between the aggregation of public mood on Twitter and action in major U.S. equity benchmarks, such as the S&P 500 and the Dow Jones Industrial Average.“In an elaborate way, positive news and tweets in social media about a company would definitely encourage people to invest in the stocks of that company and as a result the stock price of that company would increase,” according to a study published at the 2016 International Conference on Signal Processing, Communication, Power and Embedded Systems.2
A key element in any social sentiment strategy is the ability of the underlying technology to measure influence. Influence gauging is vital in using social data to generate investment ideas for multiple reasons. First, there are essentially no barriers to obtaining a social media account, be it Facebook, Twitter, etc. Second, various social media forums, including microblogging sites like Twitter, are littered with fake or bot-powered accounts.
Underscoring the importance of influence gauging, in just May and June, Twitter purged 70 million accounts it deemed fake.3 The BUZZ NextGen AI US Sentiment Leaders Index not only measures users’ influence across various online communities, but their historical accuracy as well.
In other words, a Twitter user with just 10 followers consistently recommending penny marijuana stocks is not going to be considered an influencer of importance by the BUZZ NextGen AI US Sentiment Leaders Index.
Influencers can move stocks in either direction and they do need to hail from the world of finance. Go back to Feb. 21, 2018 when Kylie Jenner sent the Tweet below about Snap Inc.’s (SNAP) Snapchat. The tweet sent shares of Snap tumbling. When Jenner sent her tweet, Snap traded around $20. The stock closed below $9 on Sept. 24. No, one reality television star is not entirely responsible for that decline, but the Jenner/Snapchat scenario underscores the power of social media influencers, regardless of their professional backgrounds.
Source: Twitter as of 2/21/2018
Social Sentiment Made Accessible
Social sentiment data platforms are often reserved for hedge funds and institutional investors with the capital to commit to customizing artificial intelligence and machine learning programs. The BUZZ US Sentiment Leaders ETF (BUZ), which tracks the BUZZ NextGen AI US Sentiment Leaders Index, makes social sentiment-based investing available to a wider audience. And no, Snap is currently not one of the fund’s 75 holdings.
1 Source: Journal of Finance and Data Science June 2018 https://www.sciencedirect.com/science/article/pii/S2405918817300247
2 Source: 2016 International Conference on Signal Processing, Communication, Power and Embedded Systems October 2016 https://ieeexplore.ieee.org/document/7955659/
3 Source: NBC News July 9, 2018 https://www.nbcnews.com/tech/tech-news/twitter-purging-millions-fake-accounts-investors-are-spooked-n889941
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 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.
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.
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