Sentiment as an Investing Factor

Hi everyone, I’m Jamie Wise, CEO of Periscope Capital and Buzz Holdings, and I’m pleased to be here today to talk about the Buzz NextGen AI US Sentiment Leaders Index. After our customary disclaimer, let’s talk a little bit about what is the Buzz Index and why we create it in the first place.

The Buzz Index launched in December of 2015. So it’s been around a long time now. And what it does is track and provide exposure to large cap US equities which exhibit the highest degree of positive investor sentiment.

Now, some quick facts about the index. The index holds 75 stocks and it holds them and ranks them based on their buzz score. And we’ll talk a little bit about what a buzz score means. From a weighting perspective, no individual stock at any rebalance date will have a weight greater than 3%, and the index rebalances monthly.

Performance Overview

First, let’s look at performance. The top of everyone’s mind. How is Buzz done year to date? Well, the dark blue line is the Buzz Index, and you can see at the end of May, it has outperformed the S&P, albeit with some volatility.

And if we zoom back, we can see the index’s performance since it went live back in December of 2015. And as you can see, the dark blue line being Buzz, the lighter gray line being the S&P 500. At this point in time, Buzz is outperforming the S&P, but also with some volatility, and most of that volatility being recent since the 2020 period.

Sentiment as a Factor

So is sentiment predictive? Is it contrarian? Is it a factor? I’d argue it can be all of the above, and it depends on the market environment.

When we think of other factors in the market, and we think of things like growth or value or quality or momentum, even, we recognize that these factors at times can outperform broader indices or not. But each of them present a unique approach to investing, a unique factor that can be explained by the dynamics of the indexes and the constituents of those index. And what I would argue that buzz has been over all these years is really a representation of the sentiment factor. And in one way, we have answered that question. So of all those years where people wondered how to measure sentiment and looking to proxies like put call ratios or the VIX index or maybe investment flows, what we see now is that by measuring the online conversation and observing the insights from it, we can come up with a unique stream, a unique return stream and performance of something that doesn’t really correlate with all of those other factors or styles.

A Dynamic, Evolving Thematic

But Buzz is more than just a simple sentiment factor, it’s a theme identifier and has been really since that COVID period. And if we look here over time, we can see before 2016, that many familiar names would be in the buzz index. But we can start to see the themes emerging in late 2018. Shopify might be an early example, but certainly as COVID took hold, we saw names like Zoom and DocuSign and Teledoc and Moderna for vaccines, all of those COVID-related themes emerging in first time entrants into the Buzz Index. And that concept has really played out since then.

It’s not a single theme that holds its constituents through time. It allows, based on the sentiments of the broader investor community, to allow those themes to dynamically play out in the index. So you don’t have to make the decision necessarily on your own which theme might be in favor.

Why It Matters for Your Portfolio

So, how can you think about Buzz potentially fitting into your portfolio? Well, is Buzz sentiment momentum or is it price momentum? Those are different things, and I think we can observe that over 10 years. Sentiment momentum, sentiment factor, this collective conviction, it is its own unique, uncorrelated return stream.

And that is a powerful thing. And sentiment momentum doesn’t mean price momentum. And if you think about why you might be individually excited about a stock in your portfolio, sure, it could be a momentum stock, something that’s trending from the bottom left to the upper right, and you think that trend will continue. But more importantly, you can find value as well. You can see stocks that have fallen and may have, in many people’s opinions, fallen too far and represent good value.

So you can get a blend of both of those factors within Buzz.

And now we can explain it through this sentiment factor, this dynamic thematic, the collective buy list of the individual investor. Is it innovative? We think so. We started this 10 years ago to answer those questions, and it’s been a really exciting journey to watch how these stocks have performed and how the index has performed, evolved, and adapted over time.

So, thank you so much for spending a few minutes learning about Buzz with me. Here’s how you can find us. And we’ll look forward to speaking soon.