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  • Thematic Investing

    Inflation Expectations Impact Thematic and Growth Equities

    Jamie Wise, Founder & CEO of BUZZ Holdings ULC
    April 16, 2021
     

    Global equity markets rallied sharply, following the March BUZZ NextGen AI US Sentiment Leaders Index (the “BUZZ Index” or “Sentiment Leaders Index”) rebalance. Improved economic conditions compiled with accelerated vaccine rollouts, provided tailwinds to U.S. equities. Inflation expectations remained elevated as investors debated the economic implications of President Biden’s $1.9 trillion dollar coronavirus relief package. Thematic and growth-oriented equities continued to lag as the general market rotation toward mega-cap and value oriented cyclical stocks endured.

    Mega-cap Technology Stocks Drive Returns

    Despite falling more than 15% from mid-February to early March, the NYSE FANG+ Index, a broad measure of a segment of the technology and consumer discretionary sectors, rebounded sharply through mid-April. The higher move provided proof of positive investor sentiment, which broadly remained elevated throughout the drawdown. The top five contributors to performance featured some familiar “FAANG” stocks. AMAZON.COM (NASD: AMZN), Apple (NASD: AAPL) and Facebook (NYSE: FB) all featured in the index’s top contributors to the positive performance of the BUZZ Index following the March 2021 rebalance.

    Top Contributors: March 18, 2021 – April 9, 2021
    Company Ticker Average Weight (%) Return Contribution (%)
    Square Inc SQ 2.09 0.48
    NVIDIA Corp NVDA 2.77 0.35
    Amazon.com Inc AMZN 3.13 0.34
    Apple Inc AAPL 3.14 0.32
    Facebook Inc FB 2.56 0.30

    Source: BUZZ Holdings ULC, Bloomberg. Past performance is no guarantee of future results. Index performance is not illustrative of fund performance. For a complete list of holdings in the ETF, please visit www.vaneck.com.

    Conversely, the biotech sector, combined with the segment of the market representing innovation and future growth themes, continued to underperform mega-cap technology and value oriented cyclical stocks. Innovation and future growth are both, shared characteristics of Plug Power (NASD: PLUG), Virgin Galactic (NYSE: SPCE) and Nikola Corp (NASD: NKLA) which all featured within the bottom five contributors to performance within the BUZZ Index in the period following the March 2021 Index rebalance.

    Bottom Contributors: March 18, 2021 – April 9, 2021
    Company Ticker Average Weight (%) Return Contribution (%)
    Novavax Inc NVAX 2.84 -0.58
    Plug Power Inc PLUG 2.24 -0.26
    Virgin Galactic Holdings Inc SPCE 2.82 -0.25
    DraftKings Inc DKNG 2.81 -0.24
    Nikola Corp NKLA 0.90 -0.13

    Source: BUZZ Holdings ULC, Bloomberg. Past performance is no guarantee of future results. Index performance is not illustrative of fund performance. For a complete list of holdings in the ETF, please visit www.vaneck.com.

    Online Message Volume Growth

    The volume of stock specific messages online experienced steady and organic growth since the BUZZ Index first launched in December 2015. Conversation volume has continued to increase particularly, over the course of the past year, as a result of the COVID-19 pandemic and publicity regarding of a group of individuals who targeted several out of favor stocks, orchestrating several of the biggest short squeezes in recent memory. Of note is that online stock-specific message volume remains elevated at its recent highs, despite economic restrictions easing as the nation reopens and the effects of the ‘Reddit Revolution’ wane.

    BUZZ Index Monthly Stock-Specific Online Mention Volume: December 2015 - March 2021

    BUZZ Index Monthly Stock-Specific Online Mention Volume: December 2015 - March 2021

    Source: BUZZ Holdings ULC.

    Sentiment Stock Highlight: U.S. Steel

    United States Steel Corp. (U.S. Steel) (NYSE: X) has been featured seven times within the BUZZ Index. It was last featured in the August 2018 Index rebalance. U.S. Steel exited the BUZZ Index just one month later and subsequently saw its share price fall by 80% over the following eighteen months. Recently, shares of U.S. Steel have been rising, bolstered by a renewed commitment to infrastructure spending as outlined by the new administration. President Biden is proposing massive infrastructure legislation via his roughly $2.3 trillion American Jobs Plan, and the stock has enjoyed gains as investors look to the company to benefit from increased infrastructure sentiment. As U.S. Steel’s market capitalization has risen back above the USD $5B eligibility threshold, positive investor sentiment has likewise risen, with the stock being added back into the BUZZ Index for the first time in over two and a half years, with a target weight of 1.13%.

    United States Steel Corp. Stock Price: August 18, 2016 - March 31, 2021

    United States Steel Corp. Stock Price: August 18, 2016 - March 31, 2021

    Source: BUZZ Holdings ULC, Bloomberg. Past performance is no guarantee of future results. Index performance is not illustrative of fund performance. For a complete list of holdings in the ETF, please visit www.vaneck.com.

    BUZZ Index April 2021 Rebalance Highlights

    GameStop

    The GameStop (NYSE: GME) saga captured the financial headlines during January 2021. The fundamental merits of GME stock took a back seat to wild trading activity which ultimately resulted in one of the most successful short squeezes in history. The events brought enormous attention to the individual investor community and specifically to those that supercharged the discussion on the Reddit message board Wallstreetbets. One of the members on the forum, Keith Gill, an early proponent of GME as a ‘value’ trade, achieved notoriety and was credited as one of the major forces behind the epic short squeeze.

    In the fall of 2020, Ryan Cohen, the renowned founder of Chewy (NYSE: CHWY), disclosed a 10% stake in the company, making him the single largest GME individual shareholder. Cohen was vocal about transforming GME’s business model from a brick-and-mortar approach to a digital one. As short interest accumulated to ever higher levels, at one point reaching more than 100% of the public float, the tinderbox was in place with Cohen and the “Reddit Army” collectively providing the fuse. After soaring near twenty-fold and then crashing back to pre-squeeze levels, the shorts in GME have been washed away and the focus of discussion has returned to that of fundamentals and value.

    As an activist investor, Cohen has been successful in seizing operating control of GME. By June 2021, Cohen and his colleagues will control the majority of the company’s board, right-sizing it to just five members from thirteen. Cohen is personally leading the "Strategic Planning and Capital Allocation Committee" which, according to the company is tasked with "identifying actions that can transform GameStop into a technology business and help create enduring value for stockholders." Amidst a broad management shakeup, Cohen pushed out the company’s Chief Financial Officer and Chief Customer Officer. Furthermore, GME recently announced that a search is underway to replace the company’s current Chief Executive Officer, targeting an individual whose experience is better aligned with the new digital transformation vision of the company. Cohen has already successfully introduced two former Amazon executives to the roles of Chief Operating Officer and Chief Technology Officer while adding former Chewy executives in the roles of vice president of brand development, senior vice president of e-commerce, and senior vice president of customer care.

    In an open letter to the company’s board penned in November 2020, Cohen said that GME "needs to evolve into a technology company that delights gamers and delivers exceptional digital experiences — not remain a video game retailer that over prioritizes its brick-and-mortar footprint and stumbles around the online ecosystem." With its ‘meme stock’ status and epic short squeeze history behind it, online conversation now routinely reviews the fundament prospects and future of the company. GME recently met the USD $5B eligibility threshold for BUZZ Index consideration while the online community’s current sentiments are overwhelming positive for the stock’s prospects. This month, GME enters the BUZZ Index for the first time ever, debuting at the maximum 3% weight at the scheduled April 2021 monthly rebalance.

    Archegos Capital

    In March, a series of very large block trades were executed on a basket of technology and media stocks, in sizes that shocked the financial markets. Later, it came to light that the blocks were a series of forced liquidation trades of the portfolio holdings of Archegos Capital (“Archegos”), a family office run by Bill Hwang. Hwang founded Archegos in 2013 following a career at Tiger Management where he was a protege and one of the so-called tiger cubs of legendary hedge fund manager Julian Robertson. Archegos had built a massive portfolio of leveraged stock positions worth as much as $100B before a series of negative moves in the portfolio forced it into a margin call position. Hwang had built the positions with the use of swaps and other derivatives contracts spread over numerous banks and dealers, allowing him to avoid filing requirements and keep his positions hidden to the markets.

    As word spread of the portfolio liquidation, many of the stocks in Archegos' portfolio fell by more than 50% over a period of a few days. While some market participants feared a broader market fallout, and the contagion from the event briefly spread to other technology stocks, it ultimately proved to be contained as more details regarding Archegos portfolio holdings and their resulting liquidation came to light, reassuring investors that the event remained isolated to Archegos. Two of the US media stocks in Archegos portfolio, ViacomCBS (NASDAQ: VIAC) and Discovery (NASDAQ: DISCA), saw sentiment surge over the past two weeks as investors collectively viewed the crashes in the stocks as buying opportunities now that the liquidations were complete. This month, VIAC enters the Index with a maximum weight of 3%, while DISCA joins with a 0.8% weight.

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

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    NYSE FANG+ index provides exposure to a select group of highly-traded growth stocks of next generation technology and tech-enabled companies. This includes the five core “FANG” stocks—Facebook, Apple, Amazon, Netflix and Alphabet’s Google—plus another five actively-traded technology growth stocks—Alibaba, Baidu, NVIDIA, Tesla and Twitter.

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  • Authored by

    Jamie Wise
    Founder & CEO of BUZZ Holdings ULC