The meme-stock craze of 2021 has experienced its fair share of ups and downs since the pandemic era. However, the recent surge in the market has once again put speculative bets in the spotlight as investors chase year-end equity gains.
Analyzing ETF Performance
DataTrek Research founders Nicholas Colas and Jessica Rabe recently conducted an analysis of several exchange-traded funds (ETFs) with exposure to popular meme stocks. Noteworthy among these ETFs are the Roundhill MEME ETF (MEME), the Robotics & AI ETF (BOTZ), and iShares Russell 2000 Growth (IWO).
Animal Spirits Reignited
According to DataTrek, the resurgence of meme stocks indicates that investors’ animal spirits are starting to run hot once again. Interestingly, each of these ETFs has outperformed the S&P 500 over the past five trading days, despite the broader market rally and declining Treasury yields. MEME, BOTZ, and IWO have recorded gains of 10.8%, 6.6%, and 5.9% respectively, while the S&P 500 saw a 3.1% increase during the same period. Additionally, both MEME and BOTZ have outperformed the benchmark index since its low on October 27.
Top ETF Holdings
DataTrek also provided insight into the top holdings of these three ETFs, along with their performance over the past five days, one month, and year-to-date. Significantly, the average returns of the top five holdings in each ETF have exceeded those of the S&P 500 across all three timeframes.
A Shift in Investor Strategy
While well-known meme stocks like GameStop and AMC have experienced considerable declines recently, investors seem to be favoring a broader approach by placing bullish bets on diversified portfolios instead of individual winners.
Positive Market Conditions
Despite this shift, the recent outperformance of ETFs with meme stock exposure reflects generally bullish market conditions, according to Colas and Rabe.
DataTrek’s analysis also emphasized that sector correlations within the S&P 500 indicate that the November stock rally is likely to continue through the end of the year. This historical indicator points to investor confidence, with a key gauge approaching levels observed during previous bull markets.