BUZZ Investing: ‘Meme’ Stocks Lead the Charge

U.S. equities continued to rally, posting their seventh consecutive monthly advance as major domestic benchmark indices neared or, set new record highs during the month. Continued spread of the COVID-19 Delta variant, and its potential impact on the global economy, proved to be of fleeting concern to equity investors. Sentiment remained elevated as U.S. companies posted strong second quarter earnings while a resilient labor market saw jobless claims reaching pandemic lows and job openings at record highs. The benchmark S&P 500^® Index gained 3.0% during August, led once again by mega-cap equities including familiar ‘FAANG’ stocks such as Microsoft (NASD: MSFT), Apple (NASD: AAPL), Amazon.com (NASD: AMZN) and Alphabet (NASD: GOOGL).

The BUZZ NextGen AI US Sentiment Leaders Index (the “BUZZ Index” or “Index”) gained 3.81% during August and led the S&P 500 Index by 0.64% year to date (22.22% vs. 21.58%, respectively) and by 18.57% over the last year (49.74% vs. 31.17%, respectively) as of the end of the month. Continue reading for details on recent performance and the latest Index reconstitution.

‘Meme’ Stocks Pace Advancing Stocks within the BUZZ Index

Commonly known as ‘meme’ stocks, a small group of equities captured the headlines early in 2021 as online ‘buzz’ propelled these stocks higher in parabolic fashion. Traditional media pundits were quick to dismiss the price actions as a ‘fad’; however, investor interest in these stocks remains robust. What began as a technical trade, in many cases driven by short interest levels primed for a squeeze, has transitioned into a legitimate value thesis, as several companies within the newly formed ‘meme’ sector have transitioned their business models, raised fresh operating capital, and are challenging ‘old-school’ investors to re-think their negative thesis. Several familiar ‘meme’ stocks were the leading positive contributors of stocks that advanced within the recent period between selection dates (August 12th – September 9th) of the BUZZ Index. Shares of AMC Entertainment Holdings Inc. (NYSE: AMC), the largest movie theater chain in the world operating over 1,000 theaters with approximately 11,000 screens worldwide¹, paced advancing stocks within the BUZZ Index during recent period between selection dates, advancing 46.7%. GameStop Corp. (NYSE: GME), the brick-and-mortar retailer of new and pre-owned games and entertainment products operating thousands of stores in the U.S., Australia, Canada, and Europe gained 22.7% during the recent period between selection dates as it continues to focus on a company-wide restructuring, transitioning its business model toward an e-commerce platform.

Source: BUZZ Holdings ULC, Bloomberg. Past performance is no guarantee of future results. Index performance is not illustrative of fund performance. Not intended as a recommendation to buy or to sell any of the securities mentioned herein. For a complete list of holdings in the ETF, please visit www.vaneck.com.

ContextLogic Inc. (NASD: WISH), doing business as Wish.com paced the top detractors from performance during the period between the August and September selection dates of the BUZZ Index. Previously featured in our July blog, WISH is another favorite stock within the ‘meme’ universe; however, it appears investor sentiment toward the e-commerce platform overshot the fundamental challenges facing the company. If you recall, WISH is a digital marketplace for cheap, unbranded goods sourced directly from Chinese warehouses competing with both Amazon.com (NASD: AMZN) and ETSY (NASD: ETSY). Shares of WISH fell 24.7% in the period between the August and September selection dates as the company disappointed investors as it reported its second quarter results. Revenue fell year over year and missed analyst forecasts and forward guidance likewise, disappointed as user engagement fell, while advertising costs rose, leading many to forecast that the company’s financial results are likely to deteriorate further in the third quarter. The decline in value in WISH shares pushed its market capitalization below the $5 billion threshold for BUZZ Index eligibility and it was subsequently removed from the Index as of the September reconstitution.

Source: BUZZ Holdings ULC, Bloomberg. Past performance is no guarantee of future results. Index performance is not illustrative of fund performance. Not intended as a recommendation to buy or to sell any of the securities mentioned herein. For a complete list of holdings in the ETF, please visit www.vaneck.com.

Sentiment Stock Highlight: Spotify Technology

Streaming music giant Spotify Technology (NYSE: SPOT, “Spotify”) first entered the BUZZ Index during the June 2020 Index reconstitution. At the time, Spotify had just begun to break out to a new all-time high and went on to almost double by the end of the year. In December 2020, sentiment on Spotify had waned and the stock was no longer featured within the BUZZ Index. Investor sentiment proved prescient as a sharp rotation away from thematic stocks within technology sector in the second quarter of 2021 sent shares of Spotify 35% lower, sharply off their highest mark. Sentiment on Spotify turned positive during May 2021 as the stock approached 2020’s breakout level, suggesting value investors were stepping in and indicating that the stock may have fallen too far and that it could be the time to ‘buy the dip’.

Since the May 2021 BUZZ Index reconstitution, shares of Spotify have oscillated as investors reacted to a disappointing Q2 2021 report indicating the company’s Monthly Average Users (MAU’s) were below the bottom end of management’s guidance range. Some speculated that as a result of Spotify increasing the price of its services across thirty markets, the decline in MAU’s were an indication that its customers may be more price sensitive than expected. Recently, Spotify appeared to be back on track with increasing MAU growth while an apparent victory in a longstanding feud with Apple Inc. (NASD: AAPL) regarding the Apple app store allowing certain applications, including Soptify’s app, to directly link to websites that bypass Apple's payments network, a key victory which could greatly increase the user experience for Spotify customers. Investor sentiment has turned positive, and this month Spotify re-enters the BUZZ Index at a 0.40% weight.

Spotify (SPOT) Stock Price: April 4, 2018 - September 9, 2021

Source: BUZZ Holdings ULC, Bloomberg. Past performance is no guarantee of future results. Index performance is not illustrative of fund performance. Not intended as a recommendation to buy or to sell any of the securities mentioned herein. For a complete list of holdings in the ETF, please visit www.vaneck.com.

BUZZ Index September 2021 Rebalance Highlights

Retail Sector
With more areas of the world reopening, consumer discretionary stocks such as retailers and restaurants have been some of the largest beneficiaries. The focal point for these companies now is, what they are doing to adjust to the new world paradigm. Despite the reopening, it appears the world may not be quickly returning to its old normal, instead transforming into one that blends both the physical and digital marketplaces. This month, four new retailers entered the BUZZ Index, Lululemon (NASDAQ: LULU), Macy’s (NYSE: M), Target (NYSE: TGT) and Home Depot (NYSE: HD). LULU, TGT, and HD were all at some point brick and mortar market darlings in the retail space prior to COVID, and investors appear to be renewing their confidence towards these companies going forward. Since the COVID crash, LULU has tripled, and TGT, M and HD have all more than doubled. While strong athleisure demand has benefitted LULU, M has been among the first department stores to successfully execute on a transformation towards a sustainable digital marketplace, and HD has seen a boost in demand due to people spending more on home renovations during the lockdowns. Retail store traffic has been on the rise, and the increasing representation of retailers in the Index indicates their run may have more room to go.

MicroStrategy Incorporated

In July, MicroStrategy (NASDAQ: MSTR) entered the BUZZ Index as the first crypto-focused company in the Index. Even as the price of Bitcoin continued to pull back from its highs, CEO Michael Saylor continued to buy into the dip, utilizing additional debt and equity issuances to fund the purchases. Interestingly, Saylor publicly tweeted out the details of all his trades, broadcasting to the world his average purchase price of Bitcoin in the $26,000s. His strategy paid off, as Bitcoin sharply bounced off $29,000 at the end of July and rallied all through August, reaching as high as $52,000 earlier this month. Shares of MSTR have rallied as well, rising 60% off their July lows. However, a recent sudden drop in values across the crypto world took some steam out of the market, and sentiment has since followed lower. While Bitcoin and MSTR have since stabilized, the declining sentiment may be suggesting the current leg of the rally is over. This month MSTR drops out of the BUZZ Index.

For more on the rebalance results, view the BUZZ Index reconstitution report.