A Meme ETF Has Beaten the Market Lately. AMC and GameStop Aren’t the Reason.

AMC
(AMC) and
GameStop
(GME), two of the classic meme stocks, which are in the portfolio, have both declined this month.

Enthusiasm for tech, combined with a return of the market’s “animal spirits,” rather than as return of meme-mania, may be driving the ETF’s latest returns, says Jessica Rabe, co-founder of DataTrek Research.

“The whole notion of a meme stock is difficult to define precisely. They came and went with the speculative tech bubble in 2021,” she says.

While the ETF is up 29.6% this year, it’s trailing the tech-heavy Nasdaq Composite, up 36.3%.

The term “meme stock” emerged in early 2021, when beaten up names like GameStop and AMC surged as retail traders weaponized social-media platforms like Reddit and X, formerly called Twitter, aiming to drive up prices in heavily-shorted stocks. Short sellers were forced to quickly cover their bets, and traders pocketed big gains with well-timed buys and sells.

Roundhill, which sponsors the fund, describes it as the “first and only ETF explicitly designed to track the performance of meme stocks.’ ” The fund tracks an index of 25-equally weighted stocks that exhibit a mix of “elevated social media activity and high short interest.” Roundhill says it rebalances the portfolio every two weeks to keep it equal weight.

Some of the ETF’s holdings aren’t particularly meme-y. Holdings as of November 21 included
Palo Alto Networks,
Tesla, Palantir, and
Datadog
(DDOG). All have solid fundamentals and have been surging amid a rally in tech. AMC, by contrast, is off more than 20% and GameStop is down 4% this month.

As of last Tuesday, only four of the 25 holdings in the ETF were among the top 18 most-mentioned tickers on Wallstreetbets, the Reddit forum that drove meme frenzy nearly three years ago. Those stocks were Tesla, Palantir, AMC, and
Rivian Automotive
(RIVN).

The phenomenon now feels like little more than a marketing term.

The
Roundhill MEME ETF
launched in December 2021 as the meme-frenzy was coming off its peak. Since inception, the ETF is down 54.6% against a 7.2% drop in the Nasdaq Composite Index. It’s also failed to catch on with investors, attracting just $2.7 million in assets.

Roundhill did not immediately respond to a request for comment.

Part of the reason the meme idea may be dying is that retail trading levels are down sharply from 2021 when traders were flush with stimulus cash and had plenty of time on their hands during the pandemic.
Robinhood Markets
(HOOD), one of the most popular trading platforms for meme traders, saw a 36% drop in equity trading volume over the two-year period ending in October 2023, for instance.

GameStop and AMC have lost luster as meme trades. GameStop shares are down 33.4% on the year. AMC’s fate has been worse with shares down 80.5% this year, including a 30% drop this month after announcing plans to sell up to $350 million of stock to pay off debts.

One bright spot for the meme ETF has been crypto. The fund holds
Coinbase Global
(COIN), along with Bitcoin mining stocks
Marathon Digital Holdings
(MARA), and
Riot Platforms
(RIOT). All three stocks have gained more than 190% this year as Bitcoin rallied.

It’s a similar story for payments company
Block
(SQ), another ETF holding, with shares up 34% over the past month, but that’s larger due to a solid earnings report earlier this month, rather than trading fever.

Animal spirits may be back in the market, but it may take more than that to bring meme stocks back to life.

Write to Carleton English at [email protected]