There is a newly proposed exchange-traded fund that would be created out of stocks for companies that are trending heavily on social media.
The ETF would use stocks for the 25 companies that make up the recently created Social Media Sentiment Index. The index is comprised of the 25 most-tweeted-about stocks. While the index is reconstituted quarterly, it rebalances every day.
This means that while the index only changes the stocks that comprise the index once every quarter, the index takes a new position on a daily basis.
The index takes either a long or a short position every day based on the connotations of the posts that are made by posts on Twitter.
The ETF has been proposed by company Market Prophit, which also created the associated index.
The index functions by analyzing the daily tweets of the 25 companies using an algorithm that determines whether positive or negative things are being said about the stocks. The index is then determined to be a long or a short based on the connotations of the tweets.
Additionally, the position of the index does not have to be 100% long or 100% short. Instead, it gets a “sentiment score” that determines the weight of its position, as well as its market cap.
The index currently has some big names, such as Apple, Amazon and Microsoft. It also includes companies like GoPro, Tesla and even Twitter itself.
So far for the year, the index is up by 7%. Most of its increases in value have come from short positions.
Although the concept is unusual, it’s not unheard of. Other ETFs have been known to track stocks that have positive news coming out of the companies, as well as stocks that possess the most favorable ratings from analysts.
However, this would be the first ETF to essentially utilize a crowdsourcing element. Any user of Twitter who tweets about a stock in the index would become involved.
This is definitely an innovative new market concept. Time will tell if it achieves the success that investors are looking for.