While traditional exchange-traded funds (ETFs) dominated the market in 2021, a handful of boutique investment firms have begun offering thematic and sector-specific funds for younger investors.
Roundhill Investments, a specialty investment firm with offices in San Francisco and New York, last week launched its latest exchange traded fund called the MEME ETF. The fund is the first ETF designed to track the performance of meme stocks that have elevated social media activity and high short interest. Their index consists of 25 equal-weighted U.S.-listed equities, including DraftKings, AMC, GameStop, Robinhood and Peloton.
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Since its inception in 2018, Roundhill has focused on creating specialty ETFs more suitable for younger clients.
“The world’s changing, and the way that young people speak about investing and where they learn about investing and what drives investment decisions is changing,” Will Hershey, Roundhill’s co-founder and CEO, said in a Zoom interview.
Hershey and his co-founder Tim Maloney set out to create an ETF company that focuses on themes and investment strategies that appeal to millennials and Gen Z. “No one needs another S&P 500 ETF. There’s too many out there,” he said. They also decided to change the way the ETFs are distributed. Instead of outbound wholesaling, they rely on PR and content to drive their message and offer lower fees.
Roundhill has eight specialty funds, including their latest MEME ETF. They have an esports ETF (NERD), sports betting ETF (BETZ), and a pro sports team ETF (MVP), in addition to their tech-focused ETFs—SUBZ, BYTE and META. Their assets add up to $1.3 billion. While they manage a few sports focused ETFs, they are not the only ones. The majority of sports-related stocks are also included in ETFs offered by sector leaders BlackRock, Vanguard and iShares, often bundled according to their market cap. Vanguard, for instance, is the biggest holder with $1.1 billion of Draftkings (DKNG) shares but like most household names steers away from MEME-y stocks.
“For me, meme stocks tell the story of Gen Z and all these people locked in the basement trying to get rich between job search, Zoom office meetings, Squid Games, Internet porn, and energy drinks. This is their chance to stick to the man,” Max Fraad Wolff, the CEO of Systematic Ventures, an AI-driven venture forecasting platform, said in an interview. “And it’s also the emergence of ETFs and stocks as a consumer good. Reddit and meme stock guys are the first people in the market to use modern digital marketing to sell you stocks the way they’re selling you toaster ovens, plane tickets, T-shirts and jeans.”
The strategy seems to be working. Roundhill’s sports betting-related ETF BETZ is worth $272 million (AUM) but is still considered a small fund compared to their META ETF which is worth $848 million. Meanwhile, the pro sports (MVP) ETF is a mere $4.9 million.
“Sports betting was performing very well, up until probably around the middle of the year,” Hershey said. “Pro Sports is less sexy than maybe sports betting is in terms of the growth. I think, in some ways, it may appeal more to institutions that are looking for an uncorrelated asset. You could make the case that sports teams historically have appreciated kind of regardless of what the rest of the world has done.”
Hershey’s firm is not the only company focusing on these specialty ETFs. Last March, Barstool Sports founder Dave Portnoy and VanEck investment management launched a new ETF focused on companies with high social media engagement levels called the BUZZ ETF. Portnoy was influential in promoting shares of Penn National Gaming, a minority owner in his company Barstool, and became the face of retail trading and meme stocks. BUZZ ETF is a meme-focused fund that mostly includes large-cap companies with a significant social media presence.
BUZZ ETF was on top of the ETF Database’s list for top ETFs of 2021. So was Roundhill’s META ETF. Last year, more than 461 new ETFs came to market, according to ETF Database, bringing the total to over 2,700 ETFs with upwards of $7 trillion in assets.
Wolff, who also teaches economics at The New School thinks the timing of these companies in launching specialty ETFs is crucial. “The largest wealth transfer in world history is happening now,” he said. “The baby boomers are dying off; they’re leaving this money to Gen Z. This is the massive turnover of wealth. Gen Z says, ‘I want to invest in stuff that isn’t like coal.’ So [investment firms] are changing the marketing story. They are making stocks cool. That’s the real idea.”
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