The socially fueled trading trend is even spreading to other stocks like Clover Health Investments Corp. CLOV and Wendy’sWEN, and the Securities and Exchange Commission’s head Gary Gensler reiterated that the regulator is monitoring the trend for any signs of shenanigans.
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What’s the buzz?
We spoke to John Hoffman, Invesco’s head of exchange-traded fund and indexed strategies for the Americas, earlier this week, and he explained how Invesco Dynamic Leisure and Entertainment ETF’s
rebalancing at the start of this month resulted in the smart-beta ETF kicking out highflying meme stock AMC.
PEJ, referring to the Invesco ETF’s ticker symbol, also is an important reopening trade, with inflation and the economic recovery front of mind.
Meanwhile, Invesco also is working on two crypto-focused ETFs, according to CoinDesk
Are you not AMC Entertained?
The story of PEJ is fairly simple but interesting because it arguably highlights some of the benefits of smart-beta products.
The ETF, which uses factors such as momentum, value, and earnings growth, among others, in an effort to outperform the broader market, punted on AMC because it no longer fit the criteria for inclusion as designated by the smart index it replicates.
PEJ is pegged to the Dynamic Leisure & Entertainment Intellidex Index and is reconstituted quarterly in February, May, August and November.
In this situation, on its quarterly rebalance AMC was kicked out of the index and so was also removed from the fund. As a result, “you’re removing the emotion from the investment process…and you are doing it systematically,” Hoffman said.
CFRA’s Todd Rosenbluth said that the ETF avoided domination by AMC, which a number of funds, including briefly PEJ, have faced, given the surge in value of the asset that is raising concerns among critics skeptical of the movie chain’s ability to produce revenues and earnings to match its newfound market value. AMC boasts a market cap of about $22 billion.
Hoffman said that PEJ is being used as a reopening play in the economic recovery from the pandemic and drawing strong inflows. It is up 33% so far this year, which is a healthy return, considering that the Dow Jones Industrial Average
and the S&P 500 index
are up nearly 13% so far in 2021 and the Nasdaq Composite
has gained over 8%. The small-capitalization Russell 2000 index
is up more than 17%.
Hoffman said that PEJ’s design has yielded periods of very strong performance at economic inflection points, including back during the 2008-09 financial crisis when it upped the ante on financial stocks, spotting value in beaten-down bank share prices.
Back in 2009, it delivered a 42% annual return, and followed that up with a 42% gain in 2010, FactSet data show.
PEJ’s expense ratio is 0.65, meaning the fund will cost $6.50 annually for every $1,000 invested.
Visual of the week
Darren Schuringa, CEO and founder of ASYMmetric ETFs sent us over the attached charts as a way to highlight what he described as elevated anxieties by investors amid the meme-stock and speculative market fervor.
“The current meme stock feeding frenzy, bounces in bitcoin, and precipitous pullbacks in some tech names have ETF investors on edge,” he wrote in emailed comments.
“Increased volatility coupled with skyrocketing margin balances are signs of a market top,” he warned.
The good and the bad
|Top 5 gainers of the past week||%Return|
Invesco DWA Healthcare Momentum ETF
VanEck Vectors Biotech ETF
SPDR S&P Biotech ETF
Invesco WilderHill Clean Energy ETF
iShares Biotechnology ETF
|Source: FactSet, through Wednesday, June 9, excluding ETNs and leveraged products. Includes NYSE, Nasdaq and Cboe traded ETFs of $500 million or greater|
|Top 5 decliners of the past week||% Return|
Amplify Transformational Data Sharing ETF
ETFMG Prime Junior Silver Miners ETF
KraneShares CSI China Internet ETF
VanEck Vectors Junior Gold Miners ETF
iShares MSCI Global Gold Miners ETF
Is there a bitcoin ETF yet?
However, Invesco filed for a pair of bitcoin and blockchain-pegged funds.
The provider filed to offer the Invesco Galaxy Blockchain Economy ETF and the Invesco Galaxy Crypto Economy ETF, public filings show.
The offering resembles a number of crypto-adjacent offerings, including those from Amplify Transformational Data Sharing ETF
VanEck Vectors Digital Transformation ETF
and Bitwise Crypto Industry Innovators ETF