While GameStop showcased the power of social media sentiment to influence the market, it isn't the only investment that users are meme-ing — including a few options to include these investments as diversified ETFs.
Read on to learn about meme stock ETF options, some examples of meme stocks and some of the benefits that adding these often-volatile investments to your portfolio might have.
Overview of meme ETFs
Before discussing the meme economy and the specifics of meme ETF stock prices, it's important to define ETFs and understand how they vary from individual stocks.
"ETF" stands for "exchange-traded fund," a grouping of stocks that trade together as a single unit. Investors who purchase shares of a fund pool their money together under the fund’s management team, which divides investor funds among the holdings laid out on its website.
Tools like MarketBeat’s ETF screener can help you narrow down funds by holdings, helping you identify assets that meet your goals.
Investing in an ETF provides several benefits over picking and choosing individual stocks. When you buy into an ETF, you gain exposure to all the assets listed as part of the ETF. Your losses won't be as concentrated should a particular stock fail to perform as expected. In other words, ETFs provide access to investments across a sector, diversifying your holdings.
As you might suspect, given the time, meme ETFs are exchange-traded funds centered around meme stocks. Meme ETF holdings are primarily composed of "meme stocks," an affectionate nickname for stocks that experience rapid and often unpredictable price movements driven by online communities. While the most famous meme stocks are retail stocks, a meme stock can pop up in any sector where online communities collectively see potential.
Meme stocks can be risky for long-term investors due to their inherently volatile nature. The popularity and price movement of meme stocks is not necessarily based on a company's fundamental financial performance but on the fuel of social media and online communities to influence market sentiment and trading behavior. These social media websites may have dubious fact-checking information and resources, causing misinformation to spread quickly.
Despite this, meme stocks are popular, especially among tech-savvy short-term traders. Meme ETFs can offer exposure to various meme stocks without the versatile market research skills required to determine which stocks are trending and which ETF for meme stocks is priced for a rebound. While there are currently limited ETFs for meme stocks that explicitly call themselves "meme-oriented," tech-forward ETFs can help you stay on the cutting edge of consumer preferences.
Examples of meme stocks
Before investing in a meme ETF, it's essential to understand which assets qualify as meme stocks. While the definition of a meme stock might change depending on the context, most are lower-cost, highly publicized consumer goods shares.
In recent years, meme stock picks have also centered around tech and cryptocurrency, including EV stocks and stocks that support the EV charging infrastructure. Actively managed meme ETFs may integrate data from online forums like WallStreetBets when selecting assets for inclusion.
Some examples of meme stocks include the following:
- GameStop: Perhaps the first and the most well-known meme stock, GameStop Corp. NYSE: GME became a public name in January 2021, when investors banked on a short squeeze on the stock. GameStop quickly saw an extraordinary price surge fueled by Reddit users, calling national attention for the first time to the influence social media could have on share prices.
- AMC Entertainment: AMC Entertainment Holdings Inc. NYSE: AMC is a chain of movie theaters hit particularly hard by the effects of the COVID-19 pandemic. Shortly after GameStop became a meme stock, investors began to look for opportunities to challenge short sellers in other areas. AMC became the next target, reaching a peak price of about $35 in June 2021.
- Palantir Technologies: While not a meme stock in the same sense as GameStop or AMC, Palantir Technologies Inc. NYSE: PLTR is another favorite of online investors. Since its initial public offering, Palantir received attention from retail investors, mainly due to its association with prominent figures like Peter Thiel, who co-founded the company. It saw a price surge that benefitted early investors who connected via social media and is now a major component of the Roundhill Meme ETF.
- SoFi Technologies: SoFi Technologies Inc. NASDAQ: SOFI is a financial technology company that offers various products and services, including personal loans, student loan refinancing and investment services. SoFi's claim to fame is its ease of use, combining a simple online application process with a lack of in-person representatives, which allows the company to offer lower rates. After stirring up attention on social media, SoFi's IPO and subsequent success led it to be another significant inclusion in most meme-oriented ETFs.
Remember that by definition, meme stocks will come into and fade out of popularity. Maintaining an active portfolio management strategy can help you capitalize on these unpredictable price movements better.
Why invest in meme ETFs?
While meme stocks and ETFs can be volatile assets, this volatility can benefit investors in some circumstances:
- High short-term returns: Meme stocks have the potential for rapid and significant price surges in a short period, resulting in corresponding rises in ETF prices. For investors who can time their entry and exit points correctly, there is a chance to make substantial gains in a short time frame.
- Chance of higher returns for smaller investors: Meme stocks, due to their luster, often attract individual retail investors who may have limited resources compared to institutional investors. Participating in meme stock investing allows smaller investors to engage in the stock market and potentially access significant returns.
- New education opportunities: Meme stock investing can be an educational experience for some investors, especially those new to the stock market. It can provide a chance to learn about market dynamics, trading strategies and the impact of social media on the meme ETF stock price while also utilizing your favorite social media sites. If investing seemed too intimidating before, meme ETF stocks could be a great place to start learning.
Understanding meme ETFs
Meme ETFs are genuinely a unique 21st-century investment. They combine the wild, wacky world of memes with the intricate workings of financial markets.
Understanding meme ETFs begins with understanding meme stocks. Most meme stocks are lower-cost, highly publicized shares of consumer goods. These stocks have garnered massive attention from retail investors, thanks to going viral on Reddit and Twitter/X. GameStop and AMC were the first and most infamous, but others followed, creating a new era of meme stock investing.
As the popularity of meme stocks grew, financial institutions recognized the potential for creating investment vehicles that capitalized on the trend. And thus, meme ETFs were born. These ETFs can track a basket of meme stocks and expose investors to this unique market corner.
The structure of meme ETFs is similar to traditional ETFs. They consist of a diversified portfolio of securities, in this case, meme stocks. However, what sets them apart is the methods used to select and weight these meme stocks within the ETF. Unlike traditional ETFs that may use market cap or other fundamental factors, meme ETFs prioritize stocks that have gained major attention and popularity on social media.
Algorithms and data analytics scan online forums, social media platforms and news articles to pinpoint stocks discussed and mentioned. This approach means the ETF captures the stocks with the most buzz in the market.
Weighting within meme ETFs is also unique. Instead of assigning weights based on market capitalization or revenue, meme ETFs often assign weights based on the social media activity surrounding each stock. The more mentions and larger the discussions, the higher its weight in the ETF. It ensures the ETF closely mirrors the sentiment and momentum of the meme stock market.
Why invest in meme ETFs?
One advantage of investing in meme ETFs is diversification. Owning a basket of meme stocks through an ETF can spread your risk across multiple companies.
While the price of a single meme stock may fluctuate wildly based on social media trends, a meme ETF's diversified portfolio can help smooth out some of the volatility. Gains from stocks that surge in popularity can offset any losses from stocks that fall out of favor.
Meme ETFs also provide accessibility to smaller investors who may not have the resources or knowledge to invest directly in individual stocks. Through a meme ETF, you can gain exposure to the meme stock market without the need for extensive research or trading expertise.
Plus, instead of tracking individual stocks and managing a portfolio on your own, you can simply buy shares in a meme ETF and let the fund managers handle the selection and weighting of meme stocks. This hands-off approach frees time and reduces the stress of active portfolio management.
As the popularity of meme investing grows, so does the variety of meme ETFs available. There are now several options, each with its unique focus and strategy. Some may focus on specific industries or sectors, while others prioritize stocks based on their virality or social media mentions.
Investing in meme ETFs also provides the opportunity for potentially high returns. As mentioned earlier, meme stocks have the potential for rapid price surges, which can translate into big gains. By gaining exposure to a basket of meme stocks, you can increase your chances of capitalizing on these short-term spikes in stock prices.
Investing in meme ETFs also offers a learning experience. For those new to the stock market, meme stocks are an entry point to understanding market dynamics and trading strategies. Following the trends and discussions on social media can help you learn about the impact of public sentiment and viral attention on stock prices.
Don't forget about a sense of community and shared excitement. The meme stock market is a passionate and engaged group of retail investors who actively discuss and analyze stocks online. Eager investors can join in with like-minded people, share ideas and learn from others' experiences.
Another benefit of meme ETFs is the potential for long-term growth. While meme stocks may be known for their short-term volatility, investing in a diversified basket of meme stocks through an ETF can provide exposure to companies that grow and evolve.
For instance, a meme ETF may include companies that have captured social media users due to hot new products or disruptive technologies. Some may be poised for long-term success.
Memes as investment vehicles
In this unique corner of the market known as meme stocks, whimsical and light-hearted elements have found their way into the world of finance. But it's not only fun and games. These stocks have become a driving force in shaping market trends.
GameStop, for instance, went viral in early 2021 due to Reddit community WallStreetBets, which rallied behind the idea of "taking on the establishment" by driving up the price of GameStop stock. What began as a grassroots movement gained momentum and hit the mainstream media in about a day. Everyone loved the David-and-Goliath tale of retail investors banding together to challenge the Wall Street giants.
As the public's attention to meme stocks grew, financial institutions saw an opportunity to profit. And so, meme ETFs were born. Meme ETFs were a fusion of traditional finance and internet culture, where algorithms scoured social media platforms and online forums for the most popular meme stocks.
Investors are drawn to meme ETFs for the potential for high returns and the sense of community. At last, there was an easy, quick and fun way for retail investors to join in on the market action.
The rise of internet culture investing
As the popularity of meme investing soars, it's clear that internet culture is exerting a big influence on investment decisions. Social media platforms, forums and online communities now play a pivotal role in shaping market sentiment.
Reddit communities like WallStreetBets, X influencers and TikTok creators are now catalysts behind stock price rallies and market movements. Their posts and recommendations have the potential to propel a stock into viral fame or send it crashing down.
Meme ETFs recognized the need to stay ahead of these social media trends. With their advanced algorithms and data analysis, they could identify the most popular meme stocks before they even gained widespread attention. This allowed them to adjust their portfolios and capitalize on the momentum.
3 best meme ETFs to buy now
Now that you understand what meme stocks are and how they form meme ETFs, let's look at some of the top meme stock-containing ETFs on the market. Investing in multiple ETFs can give you broader exposure to the "meme market" and limit losses if the market takes an adverse turn.
Roundhill MEME ETF
The Roundhill MEME ETF NYSE: MEME is a one-of-a-kind ETF investment and the first to use social sentiment to calculate its holdings. MEME tracks the Solactive Roundhill Meme Stock Index, which consists of 25 equal-weighted U.S.-listed equity securities that exhibit a combination of elevated social media activity and high short interest. This combination capitalizes on the same price movements that propelled GameStop and AMC to price discoveries in January 2021.
The underlying index rebalances every two weeks, meaning the fund is regularly actively rebalanced. This makes MEME a particularly dynamic option, which can be a strong choice if you want to add a layer of high-risk, high-reward assets to your portfolio. The expense ratio of 0.69% is also affordable compared to other actively managed options, meaning you'll lose less of your dividends.
Another top meme stock, some investors believe that Meta Platforms NASDAQ: META will bring about a new wave of internet companies that will change the current online landscape. The Roundhill Ball Metaverse ETF NYSE: METV tracks the performance of Roundhill's proprietary Ball Metaverse Index, a tiered weight portfolio of globally listed companies actively involved in the Metaverse. Some of the fund's top holdings include Roblox Corp. NYSE: RBLX, Nvidia Corp. NASDAQ: NVDA and Unity Software Inc. NYSE: U.
The fund's makeup can make it a beneficial portfolio inclusion for anyone looking to invest in the Metaverse beyond the company formerly known as Facebook. While Meta does make up a major percentage of METV, it also contains at least 49 additional companies, providing more diverse integration for investors.
Fidelity Crypto Industry and Digital Payments ETF
In addition to stocks, members of finance-oriented social media forums also regularly discuss crypto projects. While the Fidelity Crypto Industry and Digital Payments ETF NASDAQ: FDIG isn't quite a meme stocks ETF, it does help you take advantage of the social media sentiment surrounding hot cryptocurrency projects. For example, one of the fund's top holdings is in Coinbase Global NASDAQ: COIN, a top cryptocurrency brokerage that tracks social media sentiment when considering which assets to offer to its buying platform.
If you're more interested in cryptocurrency memes but not in the volatility of crypto tokens, an ETF like FDIG can offer an excellent learning experience. The fund's over $63 million market capitalization makes it a more stable choice for sometimes volatile meme assets.
Risks and rewards
Meme ETF investments have the potential for astronomical gains, fueled by social media chatter and viral trends. Meme ETF investments carry the unpredictability of meme-driven markets. Stock prices can skyrocket one moment and plummet the next.
Investing in meme ETFs requires a certain level of risk tolerance. It requires a keen eye for spotting emerging trends and understanding the underlying dynamics that drive social media sentiment. Here are other strategies to mitigate risks when diving into this market area.
- Choose individual shares: One way to limit your risk when investing in meme ETFs is to invest only in individual shares within the fund, rather than options contracts. Options trading allows you to leverage your positions and potentially increase your profits, but it also comes with increased risk. If you're inexperienced, you should avoid options trading and stick to buying just the underlying shares within the ETF.
- Invest in assets listed on major exchanges: Investing only in assets listed on major exchanges like the New York Stock Exchange (NYSE) is another way to mitigate risk. These exchanges have stricter listing requirements and provide more transparency and oversight than over-the-counter markets. This can help reduce the potential for market manipulation and other fraudulent activities prevalent in lesser-known markets.
- Do your own research: Don't rely solely on social media hype or recommendations from others. Take the time to thoroughly research the companies within the ETF and understand their financials, business model and growth potential. This will allow you to make informed investment decisions rather than blindly following trends.
- Diversify your portfolio: Instead of putting all your eggs in one basket with a single meme ETF, consider diversifying your investments across multiple ETFs and asset classes. This can help limit potential losses if one sector or asset experiences a downturn.
Memes or Dreams?
While it can be easy to focus on meme stock success stories, it's important to remember that financial misinformation can often spread more quickly than info on genuine opportunities. For example, investors who quickly jumped in on a cryptocurrency themed around the hit South Korean drama Squid Game found themselves victims of a rug pull scam.
You can limit your risk when investing in meme stocks by limiting investments to individual shares rather than options contracts and purchasing only assets listed on major exchanges like the NYSE. As with any individual asset, never invest more money than you can afford to lose.
FAQs
Before investing, you might have the following last-minute questions about meme stocks and meme ETFs.
What is a meme fund?
A "meme fund" is usually a meme ETF like the Roundhill MEME ETF. This ETF incorporates social media sentiments (like those expressed on meme forums like WallStreetBets) into its index weighting. This dynamic rebalancing strategy aims to provide short-term returns.
What is the meme stock index?
The Roundhill Meme Stock Index is an index that weights companies based on factors like short interest and social media sentiment. It favors meme stocks that showcase elevated social media activity and high short interest.
What are the four phases of the meme stock cycle?
The four main phases of the meme stock cycle are the early adopter, middle, FOMO and profit-taking phases. Early adopters are the trendsetters in the meme stock cycle and identify an opportunity before the bulk of adopters (the middle) popularize it. FOMO stage investors may lose money as the profit-taking stage arrives and early adopters take their returns.
