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BUZZ Investing: Energy and Industrial Stocks in Favor

March 24, 2022

Read Time 6 MIN

The energy sector roared back to life in February, as the Russia-Ukraine Conflict led to supply concerns. The continued popularity of hybrid work environments ushered Zoom back into the Buzz Index.

The full-scale Russian invasion of Ukraine, an outcome that many deemed a low-probability ‘left-tail’ event, significantly impacted global financial markets during February and early March. Equity markets tumbled while traditional safe-haven assets including the U.S. dollar, treasuries and gold rallied. The S&P 500 Index and the technology heavy Nasdaq Composite Index both posted overall losses, however, both indices rallied in the final three trading days of February as the ‘threat of war’ turned into the ‘reality of war’ on February 24. Of note on the day of the invasion was the Nasdaq Composite Index, which at the opening of trade on February 24 fell over 3%, entering ‘bear market’ status (a decline of 20% from its peak), yet in a stunning reversal, the index rallied to close the trading day over 3% higher, one of its biggest intraday reversals ever.

The BUZZ NextGen AI US Sentiment Leaders Index (the “BUZZ Index” or “Index”) fell -3.42% during the month of February compared to the S&P 500’s decline of -2.99%. Year to date, the BUZZ Index trails the S&P 500 with returns of -18.98% and -8.01% respectively as of the end of February. Continue reading for details on recent performance and the latest Index reconstitution.

Energy and Industrial Stocks Lead Advancing Stocks within the BUZZ Index

Old economy stocks continued to provide relative ‘safe-haven’ as investors continued to find favor in the ‘value’ segment of the market. The conflict, with no immediate resolution in sight as Ukraine digs in to defend its territory, stoked concerns related to energy supply, resulting in a 20% surge in the price of crude oil during the recent period between selection dates (February 10, 2022– March 10, 2022) of the BUZZ Index. The energy sector, which had fallen out of favor as growth and technology related equities surged throughout the pandemic, roared back to life. Traditional energy producers surged amidst the rise in crude oil prices with both Occidental Petroleum (OXY) and Exxon Mobil (XOM) featured among the top contributors to BUZZ Index performance during the period. While the price of oil surged to near decade highs, its refined output, namely gasoline, set new all-time highs as the nationwide average price neared $5 per gallon, nearly doubling in price in just the past year. The spike in prices further stoked inflationary concerns resulting in whispers of dreaded ‘stagflation’ growing louder across the investing landscape. Investor attention also turned to alternative energy producers as potential beneficiaries of the current energy environment as the segment rallied alongside traditional oil & gas produces. Shares of Plug Power (PLUG), Enphase Energy (ENPH) and ChargePoint Holdings (CHPT) were all featured among the top contributors to performance during the recent period between selection dates of the BUZZ Index.

Top BUZZ Index Contributors: February 10, 2022 – March 10, 2022
Company Ticker Average Weight (%) Return Contribution (%)
Occidental Petroleum Corp OXY 0.40 0.20
United States Steel Corp X 0.43 0.18
Plug Power Inc PLUG 1.02 0.16
Enphase Energy Inc ENPH 0.51 0.13
Upstart Holdings Inc UPST 1.23 0.12
Exxon Mobil Corp XOM 0.85 0.07
Walmart Inc WMT 1.13 0.06
Vertex Pharmaceuticals Inc VRTX 0.76 0.04
Block Inc SQ 1.47 0.02
ChargePoint Holdings Inc CHPT 0.10 0.01

Source: BUZZ Holdings ULC, Bloomberg. Past performance is no guarantee of future results. Index performance is not illustrative of fund performance. Not intended as a recommendation to buy or to sell any of the securities mentioned herein. For a complete list of holdings in the ETF, please visit www.vaneck.com.

The top detractors to performance within the period between selection dates of the BUZZ Index continued to feature former growth-oriented and thematic equities, which persist to exhibit elevated levels of positive investor sentiment despite significant pullbacks in their share prices. Last month’s top contributor to performance, Peloton Interactive (PTON) reversed course to become this month’s top detractor to performance, an indication of the wild swings exhibited across this market segment as elevated levels of volatility persist. Other stocks that detracted from BUZZ Index performance were primarily from the information technology, communication services and consumer discretionary sectors.

Bottom BUZZ Index Contributors: February 10, 2022 – March 10, 2022
Company Ticker Average Weight (%) Return Contribution (%)
Peloton Interactive Inc PTON 2.21 -0.98
SoFi Technologies Inc SOFI 2.92 -0.76
DraftKings Inc DKNG 2.71 -0.63
Snap Inc SNAP 2.44 -0.60
GameStop Corp GME 3.20 -0.57
AMC Entertainment Holdings Inc AMC 3.03 -0.57
ROBLOX Corp RBLX 1.14 -0.56
Affirm Holdings Inc AFRM 1.44 -0.47
Roku Inc ROKU 1.15 -0.46
Advanced Micro Devices Inc AMD 2.98 -0.46

Source: BUZZ Holdings ULC, Bloomberg. Past performance is no guarantee of future results. Index performance is not illustrative of fund performance. Not intended as a recommendation to buy or to sell any of the securities mentioned herein. For a complete list of holdings in the ETF, please visit www.vaneck.com.

Sentiment Stock Highlight – Lockheed Martin Corporation

After years of tension in Ukraine, Russian President Vladimir Putin shocked the world last month when he commenced a full-scale military incursion into the country. U.S. Equities, which have been mired in a downtrend all year amidst continued inflationary concerns, looming interest rate hikes and the aforementioned geopolitical instability in Ukraine, initially sold off on the news of the invasion, yet quickly reversed course by the morning. The stock market has followed the "sell the build-up, buy the invasion" script over the past several major wars around the world, and this time initially appeared to be more of the same. Demand for ‘safe-haven’ assets such as gold and the U.S. dollar increased, while the price of crude oil surged.

With no quick resolution to the conflict in sight and tensions between Russia and the west continuing to increase, U.S. defense companies such as Lockheed Martin (LMT) stand to profit from the conflict amidst a potential defense-spending renaissance. Following Russia's invasion, the U.S. Congress passed a $1.5 trillion omnibus spending package which included $782 billion in defense appropriations as it prepares to ramp up military supplies to Ukraine.1 Germany's stark departure from their policy of not exporting weapons to conflict zones and raising defense spending to 2% of GDP could further mark a new dawn for European defense spending.2

Lockheed Martin Stock Price | April 2017 – March 2022

Lockheed Martin Stock Price | April 2017 - March 2022

Source: BUZZ Holdings ULC, Bloomberg. Past performance is no guarantee of future results. Index performance is not illustrative of fund performance. Not intended as a recommendation to buy or to sell any of the securities mentioned herein. For a complete list of holdings in the ETF, please visit www.vaneck.com.

BUZZ Index March 2022 Rebalance Highlight

Zoom Video Communications

At the peak of the pandemic, one of the hottest stocks in the stock market was Zoom Video (ZM). As the world suddenly transitioned to working from home, the demand for remote communication software exploded, and ZM benefited greatly as the most recognizable offering on the market. Between February 2020 and October 2020, ZM surged from $70 to $580 per share. At the time, many market participants were of the view that even after the eventual lifting of lockdowns, a permanent transition to hybrid working arrangements would continue to generate demand for ZM’s product offering. While the company was able to significantly grow both its customer base and revenues, it was unable to meet heightened investor expectations as it recently reported below-consensus earnings while lowering forward guidance. Plagued by issues which include high turnover among smaller sized customers, together with increased competition from Microsoft Teams and Google's suite of remote offerings, ZM’s stock price has almost completely given up its gains since the onset of the pandemic, now trading at just above $100 per share. Sentiment, however, has once again begun to tick up, as investors digest the stock's steep discount relative to its former levels. While most lockdowns have ended, many companies have indeed adopted various hybrid remote work arrangements and ZM continues to be an integral part of many people's working reality. This month, as investor sentiment shifts back to the positive, ZM returns to the BUZZ Index with a 0.84% weight.

For more on rebalance results and a full breakdown of index constituents added and removed for the month, view the BUZZ Index reconstitution report.

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Important Disclosures

Company data is the source for all particular company information quoted.

Sources:

1 Investopedia News, Consolidated Appropriations Act of 2022: What's in It, What's Not. March 15th, 2022.

2 Wall Street Journal, Germany to Raise Defense Spending Above 2% of GDP in Response to Ukraine War. February 27th, 2022.

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