Understanding The Buzz about BUZZ


Yesterday was the first day of trading for the Van Eck Vectors Social Sentiment ETF (BUZZ). The fund will be a large cap proxy with holdings culled from chatter on Twitter, reddit and other social media platforms. This is not the first go at this sort of thing. A while back the Sprott Buzz Social Media Insights ETF traded with symbol BUZ, just one Z. It had a similar strategy and did very well but failed to gain traction with enough assets and closed after a short time. BUZZ seems unlikely to have the same problem. Eric Balchunas from Bloomberg has been all over this as it has unfolded, reporting that on day one, BUZZ took in $281 million. BUZZ has gotten a lot of attention from David Portnoy from Barstool Sports who is involved with both the ETF and the fund's index provider.

Part of the conversation is whether or not "scraping" social media for investment ideas is following so called "dumb money." On the other end of the spectrum might be the ARK Innovation ETF (ARKK) which could be thought of as smart money or at least has been viewed as such until recently and maybe still is, not sure. ARKK fund manager Cathie Wood has of course been transformed into a star for hanging seemingly absurd price targets on Tesla (TSLA) and Bitcoin and being kind of right. ARKK holding Crispr Therapuetics (CSPR) is down 47% and Lending Tree (TREE) is down 37% and of course TSLA has also been punished with a 30% hit, all in very short order and that's just three of the ETF's holdings. The ARKK fund itself is down about 25%.

So who's the smart money and who is the dumb money? I have no idea and that is less important than the clear willingness of market participants to speculate. Regardless of whether BUZZ is dumb or smart, it is chasing collective sentiments expressed on the internet without much emphasis on fundamentals. The Twitter account @ARKDaily which is not affiliated with ARK sent out an image yesterday showing that the ARK suite of funds placed 57 trades yesterday in reaction to volatility in many of its holdings. ARK runs concentrated portfolios so 57 trades seems like an enormous number. Fund manager Wood regularly talks about this sort of trading to take advantage of volatility. This is clearly a form of speculation and she has injected it into her funds.

This doesn't make BUZZ wrong. It doesn't make Wood wrong. Either or both could be right or wrong but this is still speculative behavior that we've seen in countless other stock market cycles. The argument that there is now a bubble is less clear to me than the idea of a mania, a speculative mania, but that would be a distinction without a difference if the market cuts in half. I am not trying to predict that sort of decline for stocks but it is important to understand the waters we currently swimming in. Extreme speculation happens closer to tops than bottoms.

I'm not a big fan of chasing the sort of immediate heat of things like meme stocks. Resisting the temptation of immediate heat can be difficult but if you're participation in markets focuses on a successful long term outcome without wanting to make a full time job out of your portfolio then seeking to add volatility becomes emotionally counterproductive and probably financially counterproductive too. I've come to have more appreciation for ergodicity, letting the market work for you and ergodicity will come into greater play the next time the market crashes, make no mistake there will be a next time at some point, and then recovers to a new high. If you want more volatility for your portfolio than whatever the market gives then BUZZ and ARKK have high potential for that outcome.