Even if you’re an advisor or investor that primarily follows large-cap, higher-quality stocks, chances are you’ve heard about the meme stock fervor that was born a few years ago.
Looking back, all the ingredients were there for a meme stock frenzy – one that led to massive gains for Gamestop (GME) and AMC Entertainment Holdings (AMC). Markets were punished in early days of the coronavirus pandemic. Young, tech-savvy investors were flush with “stimy” cash and big dreams. Not to mention fear of missing out (FOMO) and voila, meme stock mania was born.
Grizzled investors and naysayers can criticize all they want, but meme stock enthusiasm lives on today. In fact, it may be stronger than ever, though in different form relative to what was initially seen with AMC and Gamestop. To be sure, some of the tenants are the same. Armies of retail investors band together in search of low-price, heavily shorted stocks or sub-$5 and $10 names in industries currently in the spot. Think quantum computing and rare earths mining, among others.
Obviously, this is a risky form of stock-picking, but investors that want to join the meme party without having to select individual names, don’t worry because there’s an ETF for that. The Roundhill Meme Stock ETF (MEME) debuted on Oct. 8.
MEME Details Matter
MEME could well be a prime example of a rookie ETF being at the right place at the time, particularly if a good number of retail traders say enough with the stock-picking and turn to the convenience of an ETF.
“The Roundhill Meme Stock ETF offers targeted exposure to the retail-driven meme trade. What started with GameStop’s historic short squeeze and AMC’s headline-grabbing rallies has grown into a lasting feature of the market, whereby retail investors can collectively move public companies by billions in market value,” according to Roundhill. “Most recently, we’ve seen OpenDoor become the latest reminder of how quickly retail enthusiasm can fuel extreme volatility in stock prices. ”
MEME is actively managed and that’s likely a plus because with meme stocks, things move fast. Really fast. Owing to MEME’s infancy, it’s difficult to forecast how frequently the portfolio will turnover, but it is fair to say meme stocks in a passive fund wrapper is a riskier wager than the active management offered by MEME.
Consider this. Opendoor (OPEN), Plug Power (PLUG) and Applied Digital (APLD) – a trio combining for more than 31 of the new ETF’s roster – are up an average of 93% over the past month. At least with active management the possibility exists for exposure to high fliers to be trimmed before deep pullbacks – hallmarks of meme stocks – occur.
There’s more. Investors new to meme stocks may not realize this, but the most active “pushers” of meme stocks are either sector-agnostic or hyper-focused on specific groups. Said another way, it’d be surprising to see MEME’s portfolio include all 11 of the global industry classification standard (GICS) sectors. The ETF currently features seven with technology and industrial stocks combining for two-thirds of the portfolio.
What MEME Isn’t
Before getting involved with MEME, investors should realize what this fund is not. Don’t compare it to the various social sentiment ETFs on the market today because these products aren’t comparable.
MEME is likely to live up to its ticker and focus exclusively on meme stocks, but social sentiment ETFs don’t have that mandate. Rather, those funds typically focus on stocks that are oft-mentioned in various investing forums and on social media platforms. Sure, that can lead to some meme stocks entering those ETFs, but that methodology also creates rosters that are littered with familiar large-cap fare such as Apple (AAPL) and Tesla (TSLA).
Bottom line: MEME could certainly find a niche and it’s relevant in the current environment. Investors need to know what they’re buying before getting involved.
