New exchange-traded fund (ETF) will allow investors to follow the most popular shares on Twitter. How good is this strategy?
Market Profit, analyzing social networks in search of trends, creates a mutual fund, based on the developed "Social Media Sentiment Index" (Social Media Sentiment Index). In May, the company began tracking tweets with a "cashtag" - ticker symbols with a dollar sign..
New exchange-traded fund will buy and sell shares, popular on Twitter. It all reminds, that the rapid development of the ETF industry makes it possible to invest in ideas, which are not necessarily financially reasonable.
Sentiment Index is based on tracking stock trends over a three-month period. В него включаются 25 most popular companies, торгующихся на биржах США, with capitalization over 1 billion dollars.
Market Prophit analyzes investment-related tweets from over 250 thousand. users - while their number is growing every day. Selected stocks based on public sentiment are bought and sold, and positions are rebalanced every day. Market Prophit President Igor Gonta says:
“Promotions are selected based on user sentiment, and the portfolio is weighted by market capitalization and risk ".
Opinions on product potential, based on "folk wisdom", so far ambiguous. Some were interested in the idea, however, most experts find it strange, if only because, that herd instinct has never been a good basis for successful investments. The Investor's ETF Report editor Mark Salzinger says:
"It looks like a ruse, which is unlikely to benefit serious investors. Many people think, that stocks are in the headlines ahead of other stocks. In fact, the opposite is true.: promotions in headlines, usually, lag behind stocks, free from public scrutiny.
The focus on headlines is too high and not justified by the true value of the companies. Bad news leads to investor interest, targeting cheap stocks. The good ones spark the curiosity of moment traders. None of these groups conduct a serious analysis of the fundamental value of a company.. Instead, they are driven by emotions. ".
Без сомнений, Twitter fund will be solely based on emotions, not on the analysis of corporate reports. On the other hand, if the approach still works and the fund manages to turn chatter into profit, investor interest in it will increase significantly.
ETF Selections Newsletter Editor & Timing Stephen McKee notes, that any new concept must prove itself:
“Lunch will be recognized by the food, and the mind is by hearing. At first sight, like most investment ideas, the offer sounds tempting. But in real life it may not work.. We must wait and see ".
Even if the fund can generate high returns, the main question is whether his strange approach is able to find its place in the structure of the investment portfolio.
Investors are unlikely to specifically allocate funds to purchase an actively managed fund, which is offered under the guise of an index and is also based on Twitter posts.
Actually, it will be difficult even to classify the fund. Seems to be, the basis of his portfolio will be made up of American securities of high capitalization, maybe, импульсные. And targeting Twitter means, that these will be promotions, everyone is talking about. According to Gont, the portfolio will be based on recent hot IPOs, fast growing papers and, certainly, Apple (NASDAQ: AAPL) и Alphabet (NASDAQ: GOOG).
Although the fund will be index based, in reality, he will follow the strategy of "smart beta" - as the industry calls the process of active management, applied to the concept of index investing. ETF Trends Editor Tom Lydon says:
“I see the strategy as active, even though it is based on an index. This is actually a rule-based approach, applied to index. This strategy allows the manager to be accountable.. All purchases and sales are made for a specific reason and meet certain criteria. Think, there will be more deals in the Twitter fund, than in a typical index, therefore it can be classified as actively managed ".
In these conditions, it is difficult for an investor to decide, is the fund suitable for his portfolio, based on a simple mixture of papers.
Investors must understand, that management companies are bringing new products to the market, hoping to attract followers.
Therefore, it is advisable to clarify, whether the new funds have a solid long-term foundation and are they able to improve the portfolio. Otherwise, investors get only one thing for their money - idle chatter..
Original: insider.pro
