Source: Zhitong Finance
An exchange-traded fund (ETF) designed to capitalize on the retail trading frenzy during the pandemic closed just two years after its inception, another sign that the heyday of Meme shares is over.
Roundhill Investments announced last week that it will liquidate the Roundhill MEME ETF (MEME) and two other funds in December. The MEME Fund screens companies based on social media activity and short positions. Since its inception in December 2021, the fund has accumulated only $2.6 million in assets, lagging behind the benchmark S&P 500 index by about 60%.
In 2021, a large number of retail traders gathered on social media to plan a large-scale short squeeze on companies such as Gaming Station (GME.US) and AMC Cinema (AMC.US), driving some stocks to rise by three digits. Issuers quickly caught on to this boom, but funds such as MEME and Vaneck Social Sentiment ETF (BUZZ) had difficulty attracting investors. The BUZZ Fund has assets of $57 million.
Nate Geraci, president of consulting firm The ETF Store, said: “Incorporating the 2021 phenomenon into ETFs simply doesn't work in today's environment.” “Niche strategies, zero financial adviser participation, and poor performance are typical reasons for ETF closures.”
At the height of the pandemic, Wall Street issuers scrambled to take advantage of the extremely active intraday traders brought about by the US government's stimulus measures to launch a large number of retail ETFs. But with the Federal Reserve's most aggressive monetary tightening policy in decades, this frenzy has subsided. Industry experts said that such funds were born out of the $7.5 trillion crowded ETF sector, of which there are already more than 3,330 US ETFs. It is not surprising that they are in trouble.
What is certain is that retail traders are active in the stock market as well as other market areas such as zero-date options and foreign exchange trading. Just this month, investors bought shares of bankrupt companies such as WeWork and Yellow. According to data from S&P Global Market Intelligence, retail traders sold nearly $16 billion in stocks last month. This sell-off indicates that short-term traders' enthusiasm for stocks is fading.
Amrita Nandakumar, president of Vident Asset Management, said that the problem with ETFs like MEME is that they don't last long enough. She used the $1.3 billion ROBO Global Robotics and Automation Index ETF (ROBO) as an example. The fund was launched in 2013 and has more than doubled since its inception. She said that unlike MEME, ROBO is a themed fund that tracks companies that invest in revolutions in robotics, automation, and artificial intelligence rather than simply relying on market momentum.
“The craze is often driven by retail investors,” Nandakumar said. “Institutions — drivers of capital flows — are not inclined to investment themes. ESG is one of the few exceptions. If a topic is short-lived, financial advisors are unlikely to support it.”
The MEME Fund was launched in December 2021 to track the Solactive Roundhill MEME stock index. According to the company's website, the fund will stop trading in December and will no longer accept creation or redemption orders.
Strategy Securities' ETF and technology strategist Todd Sohn said: “This is a clean-up of some ETFs that did not have portfolios in the era of zero interest rates.” Sohn added that given the speculative nature of the portfolio, he was surprised that the fund had taken so long to liquidate.
Editor/Jeffrey