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Meme Frenzy Pushes These ETFs Higher: Will This Continue?

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Meme stocks, once the darling of the stock market last year, have seen a huge resurgence this month. This is especially thanks to easing inflation, a drop in Treasury yields and declining commodity prices that have resulted in risk-on trade. Additionally, attractive valuations drove investors to these stocks (read: Dow Jones Reclaims 34,000: ETFs to Ride On).

As such, ETFs targeting meme stocks like Roundhill MEME ETF (MEME - Free Report) , VanEck Social Sentiment ETF (BUZZ - Free Report) , SoFi Social 50 ETF (SFYF - Free Report) and AXS FOMO ETF (FOMO - Free Report) have been on the rise over the past month.

In fact, trading in single stock options has shot higher in recent weeks, with a 10-day average daily trading volume at a more-than six-month high of nearly 25 million contracts, per Trade Alert data.

Meme stocks are those that grabbed immense investor interest due to hype on social media and online forums like Reddit, WallStreetBets and Robinhood, rather than the company fundamentals, resulting in a surge in volumes and share price. Meme stocks are triggered by small traders who cause a short squeeze on the stock. Short squeeze is a term used by market participants to refer to a phenomenon where short sellers in a stock, who have placed their bets on its fall, rush to hedge their positions or buy the stock in the event of an adverse price movement, in order to cover their losses. This leads to a sharp rise in demand for shares, and a huge rally in share prices.

3 Meme Stocks on Move

On Reddit's WallStreetBets forum, Bed Bath & Beyond (BBBY - Free Report) , GameStop (GME - Free Report) , and AMC Entertainment (AMC - Free Report) were among the top 10 most talked about stocks. Since the June 17 bottom, Bed Bath, GameStop and AMC Entertainment surged 65.1%, 8% and 43.8%, respectively. Investors betting against the three well-known meme stocks have lost about $1.65 billion this month after the shares soared in value, prompting a short squeeze.

The return of the meme craze indicates that investors are getting more comfortable with taking on more risk in their portfolios after they saw big declines in some of their favorite stock holdings. However, investing in these stocks is a risky choice and could result in heavy losses. This is because when excitement surrounding the stock cools down, it could lead to a freefall in share price and investors end up losing their capital. The fundamental health of these companies are seemingly not sound (read: 5 Most-Loved Dividend ETFs of This Year).

Further, Bed Bath and GameStop have an unfavorable Zacks Rank #4 (sell) or 5 (Strong Sell), suggesting some pain, while AMC Entertainment has a Zacks Rank #3 (Hold).

ETFs in Focus

Roundhill MEME ETF (MEME - Free Report) – Up 14.8%

Roundhill MEME ETF is the first ETF globally explicitly designed to track the performance of meme stocks. It follows the Solactive Roundhill Meme Stock Index and holds 26 stocks in its basket, with none making up for more than 5.1% share.

Roundhill MEME ETF has gathered $1.2 million in its AUM since its inception in December 2021. It charges 69 bps in annual fees.

VanEck Social Sentiment ETF (BUZZ - Free Report) – Up 17.3%

VanEck Social Sentiment ETF offers exposure to 75 large-cap U.S. stocks, which exhibit the highest degree of positive investor sentiment and bullish perception based on content aggregated from online sources, including social media, news articles, blog posts and other alternative datasets. This is easily done by tracking the BUZZ NextGen AI US Sentiment Leaders Index.

VanEck Social Sentiment ETF has amassed $88.5 million in its asset base while charging 75 bps in annual fees.

SoFi Social 50 ETF (SFYF - Free Report) – Up 15.6%

SoFi Social 50 ETF follows the SoFi Social 50 Index and is composed of the top 50 most widely held U.S. listed stocks on SoFi Invest, where the companies are measured by the number of accounts that invest in that stock. Consumer cyclical is the top sector accounting for 37.2% while communications (26.2%), and technology (22.6%) round off the next two spots (read: Nasdaq Enters Bull Market: ETFs to Tap the Rally).

SoFi Social 50 ETF has amassed $18.5 million in its asset base and charges 29 bps in annual fees.

AXS FOMO ETF (FOMO - Free Report) – Up 2.8%

AXS FOMO ETF is an actively managed ETF that seeks to provide capital appreciation and offers investors a way to avoid missing out on market trends. It takes its name from the phrase “Fear of Missing Out” (FOMO - Free Report) , which is commonly defined as social anxiety stemming from the belief that others might be enjoying something while the person suffering the anxiety misses out. AXS FOMO ETF allows investment in areas of the market currently favored by retail and individual investors, thus avoiding FOMO. It selects stocks that have exhibited strong momentum as well as those that have had good long-term performance but have seen a recent abrupt sell-off.

AXS FOMO ETF has AUM of $5.6 million and charges 90 bps in annual fees.

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