You can now invest in a meme stock ETF

By Fergus Halliday

December 10 2021
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Those looking to leverage the hype of the WallStreetBets bandwagon have a new option to consider.

Roundhill Investments is looking to capitalise on the fervour around “meme stocks” with a new exchange-traded fund dedicated to them.

Announced and launched on the NYSE Arca exchange earlier this week, the Roundhill MEME ETF is set to be the first exchange-traded product explicitly targeting investors who want exposure to meme stocks like GameStop and AMC.

Roundhill Investments framed the launch of the MEME ETF as a response to both the rise of retail trading and the emergence of social investing.

“As technology continues to advance in the digital age, not only has access to investing become easier for retail traders, but so has the ability to communicate with like minded traders,” the company said.

At launch, the MEME Index is composed of 25 equal-weighted United States-listed stocks that Roundhill Investments believe exhibit “a combination of elevated social media activity and high short interest”.

Going forward, Roundhill Investments said that they’ll be analysing social media activity and rebalancing the index every two weeks in order to capture new trending stocks as they emerge.

Despite this foresight, the company issued a warning for would-be investors about the all-but-inevitable ups and downs of highly-speculative meme stocks.

“Due to the MEME Index’s focus on stocks that are both highly shorted and subject to increased retail sentiment, as well as the fund’s high turnover given bi-weekly rebalances, MEME may experience significantly greater volatility than conventional equity ETFs or mutual funds,” the company said.

Speaking to nestegg, RMIT’s Dr Angel Zhong said that retail investors need to be cautious when committing to thematic ETFs, regardless of whether any meme stocks are involved.

“With the increasing concern over the tech stock bubble, it is essential to evaluate the valuation of the underlying companies in tech ETFs before committing,” she said.

Dr Zhong argued that there are three key factors that potential investors should look at when it comes to thematic ETFs like Roundhill Investment’s MEME ETF.

“First, what is trending today may no longer be popular in the next few months,” she said.

“Second, it’s important that investors evaluate and review their existing position to avoid overweighting a certain sector.

“Third, market timing is important but difficult to gauge and thematic ETFs could be volatile due to their focus on hot stocks in the market.”

Dr Zhong warned that a thematic ETF generating high returns today could lose investor attention tomorrow, leaving investors worse for wear.

About the author

Fergus Halliday

Fergus is a journalist for Momentum Media's nestegg and Smart Property Investment. He likes to write about money, markets, how innovation is changing the financial landscape and how younger consumers can achieve their goals in unpredictable times.

About the author

Fergus Halliday

Fergus is a journalist for Momentum Media's nestegg and Smart Property Investment. He likes to write about money, markets, how innovation is changing the financial landscape and how younger consumers can achieve their goals in unpredictable times.

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