Meme Stock ETFs: Understanding the Market and Investment Options

Meme stock ETFs have gained significant attention in recent years, but what exactly are they? A meme stock ETF is an exchange-traded fund that tracks a portfolio of meme stocks.

These stocks are often highly volatile and can experience rapid price swings, making them a high-risk investment option. Meme stock ETFs allow investors to gain exposure to this market with a single trade.

Investors should be aware that meme stock ETFs often have high fees and may not be suitable for long-term investors.

Meme stock ETFs are a type of investment that focuses on popular meme stocks, which are often driven by social media hype.

Retail investors, who are a key part of this phenomenon, get behind a concept or a single stock for no reason other than they just are.

This concept is fueled by too much liquidity in the system, making it difficult to say if it's going away.

Meme stock ETFs are not just about one stock, such as AMC or GameStop, but rather about the broader trend of retail investors driving stock prices.

GameStop is often cited as the first meme stock, with its price skyrocketing from $5 to $500 in a matter of months.

In August 2020, a YouTube persona named Roaring Kitty predicted that GameStop shares could soar to $50 per share, citing the company's high short interest and the potential for a massive short squeeze.

Roaring Kitty's real name is Keith Gill, who was also active on Reddit as u/deepF...Value and on the subreddit r/wallstreetbets.

The short squeeze took place in January 2021, with the price of GameStop shares exploding to nearly $500 amid a frenzy of short-covering and panic buying.

This event made GameStop a household name and cemented its status as a meme stock.

The meme stock concept gained a Robin Hood-like connotation, with small retail investors taking on Wall Street elite and hedge funds.

A few days after Roaring Kitty's video, Ryan Cohen, the former CEO of Chewy.com, purchased an unknown amount of GME stock, which Gill acknowledged on Twitter.

By January 12, 2021, Cohen joined the board of GameStop, and the stock price rose rapidly, doubling in value over the next two days.

GameStop shares continued to drift lower after the initial meme stock craze, settling at just over $10 a share by the Spring of 2024.

However, in mid-May 2024, the stock experienced a sudden resurgence, fueled by Keith Gill's return to social media.

Gill's cryptic posts on X, which were viewed over 24 million times, reignited frenzied interest in meme stocks, causing a massive surge in trading volume and price.

GameStop shares skyrocketed nearly 100% on Tuesday, May 14, 2024, following a 74% increase the previous day.

This rapid price appreciation caught short sellers off guard, resulting in significant losses estimated at over $1.3 billion in just the two days following Gill's tweets alone.

The renewed meme stock rally also extended to other companies, such as AMC Entertainment, which saw its stock price jump 120% in early trading on Tuesday.

Meme Stock ETFs are now available for investors to buy and sell.

The Roundhill Investments Meme ETF, launched in December 2021, is an equal-weighted portfolio of 25 stocks based on social media popularity and market sentiment.

This ETF rebalances twice a month, considering social media activity and short interest in eligible securities.

The VanEck Social Sentiment ETF, launched in March, tracks an index of the 75 large-cap U.S. stocks that show the highest positive investor sentiment and bullish perception based on sources like social media and news articles.

If you're not interested in building and managing your own portfolio of meme stocks, you can consider ETF solutions like the VanEck Social Sentiment ETF, which has an annual expense ratio of 0.75%.

Meme stocks can be especially volatile, so plan accordingly and be prepared to continue investing more over time.

Roundhill Financial has filed a plan with the U.S. Securities and Exchange Commission to launch the Roundhill MEME ETF, which would track an index that includes stocks of companies with elevated levels of social media activity and short interest.

An ETF is a basket of securities, like stocks, that can be bought and sold on an exchange like a stock, making it easier to diversify your portfolio and manage risk.

The Tuttle Capital Management FOMO ETF attempts to capitalize on the hype around meme stocks while limiting risk, and the VanEck Vectors Social Sentiment ETF tracks an index of the 75 large-cap U.S. stocks that show the highest positive investor sentiment and bullish perception.

In fact, a fund may do all the work for you in identifying potential meme stocks, which is the trickiest part of investing in them.

Only 25 active US ETFs dabbled in GameStop's stock in 2021, and many of those had some of the largest stakes in GameStop, but their GameStop trade didn't seem to matter; the liquidated funds were already struggling to attract investors.

The selection criteria for meme stock ETFs can be quite unique. The Solactive Roundhill Meme Stock Index, for example, includes equities from the Solactive GBS United States All Cap Index that meet minimum market capitalization and average daily trade volume requirements.

Each issuer is assigned a social media activity score based on the number of mentions of a company's name or its ticker over a 14-day period on specific social media platforms. This score is a key factor in determining the top 50 issuers that are then ranked by short interest.

The top 25 issuers by short interest are selected as the components of the Index and are equally weighted. This selection process is repeated bi-weekly, with selections made on every second Friday.

Meme stocks didn't truly emerge until 2020 via the Reddit forum r/wallstreetbets, where users work together to identify target stocks and promote them.

The promotion of meme stocks largely involves buying and holding, even after the price spikes, with strong hands supporting the stocks.

Unlike online pump-and-dump schemes, the goal is not to defraud investors but to make money together.

Meme stocks often have elevated levels of social media activity and short interest, which are factors that go into making them meme stocks.

The Roundhill MEME ETF is a fund that tracks an index of stocks with these characteristics and rebalances every two weeks.

An exchange-traded fund (ETF) like the MEME ETF is a basket of securities that can be bought and sold on an exchange like a stock.

The VanEck Vectors Social Sentiment ETF (BUZZ) also tracks an index of stocks with high positive investor sentiment and bullish perception based on social media and news articles.

Matthew Tuttle, chief executive of Tuttle Capital Management, notes that the trick to identifying potential meme stocks is looking for small-cap companies with a large amount of short-selling interest from Wall Street's institutional investors.

Active ETFs took a chance on GameStop, with 10 funds making the biggest bets on the game retailer throughout 2021.

Most of these ETFs are quantitative model-based strategies with varying levels of manager discretion, and they largely kept their GameStop exposure under 2% even at the largest.

Cambria Shareholder Yield ETF SYLD appeared to be an outlier, with a nearly 9% position on Jan. 27, 2021, but this was heavily influenced by GameStop’s price jump on that day.

The ETF had started to trim its stake earlier that month to avoid hitting a 5% position cap and continued to drastically slash its exposure as GameStop’s price rocketed throughout January.

Avantis US Small Cap Value ETF AVUV is another fund that picked up GameStop before January 2021, and it also sits on the value side of the Morningstar Style Box.

These funds generally got a late start, as their models took time to digest information from the first few months of the year, but most captured a modest, though still impressive in absolute terms, sliver of GameStop’s 2021 returns.

The rest of the list is dominated by momentum and trend-based funds, which bought higher than they sold, however, losing money by the time they fully cashed out.

The selection criteria for Meme Stock ETFs are based on social media activity and short interest. The Solactive Roundhill Meme Stock Index, for example, considers the number of mentions of a company's name or ticker on specific social media platforms over a 14-day period.

Each issuer is assigned a social media activity score, which is then ranked according to short interest. The top 25 issuers by short interest are selected as the components of the Index.

The Index components are rebalanced bi-weekly, with selections made on every second Friday, known as Selection Day. If a Selection Day does not fall on a day when the New York Stock Exchange is open, the Selection Day is moved to the next Business Day.

The MEME ETF, launched by Roundhill Investments, features an equal-weighted portfolio of 25 stocks based on social media popularity and market sentiment. Eligible securities are given a social media activity or "meme" score, considering the number of times a firm or its ticker is mentioned on specific social media platforms over a 14-day period, with consideration paid to their short interest.

The top 25 firms with the highest social media activity and short interest are included in the portfolio, which is re-examined and rebalanced twice a month.

Meme stock ETFs are designed to track the performance of meme stocks, which are shares of companies that experience a sudden surge in price due to online interest and social media buzz. These ETFs can be a convenient way to invest in meme stocks without having to individualy purchase shares.

One example of a meme stock ETF is the VanEck Social Sentiment ETF (BUZZ), which tracks an index of 75 large-cap U.S. stocks that show high investor sentiment and bullish perception based on social media and news articles. This ETF has an annual expense ratio of 0.75%.

The Roundhill MEME ETF (MEME) is another example, which will include 25 meme stocks with high mentions on social media and high short interest. The fund will rebalance every two weeks based on these criteria.

Investing in meme stock ETFs can be a way to capture the potential for big returns, but it's essential to be aware of the risks involved. Meme stocks can be extremely volatile, and their prices can drop just as quickly as they rise.

Some active ETFs, like Cambria Shareholder Yield ETF (SYLD) and Avantis US Small Cap Value ETF (AVUV), have successfully captured a portion of the returns from meme stocks like GameStop. However, these funds often have a more nuanced approach, focusing on fundamentals and profitability rather than pure sentiment.

If you're considering investing in meme stock ETFs, it's crucial to understand the underlying mechanics and risks involved. With the right approach, these funds can provide a unique way to participate in the meme stock phenomenon.

Here are some key takeaways about the Roundhill MEME ETF: