BUZZ Investing: Omicron Boosts Sentiment in Healthcare & Work-From-Home Stocks

Reports of a new COVID-19 variant rippled across the world in late November sending global equities sharply lower. The World Health Organization dubbed the new strain ‘Omicron’ and classified it as a ‘Variant of Concern’, leaving epidemiologists and investors alike searching for clues of its potency and the current vaccine efficacy. President Biden ended speculation regarding who will head the U.S. Federal Reserve (“Fed”) by announcing that current Chairman Jerome Powell would be reappointed to a four-year term. In the days following the announcement, Powell doubled down on recent hawkish comments arguing, “it’s probably a good time to retire that word” referring to the oft cited ‘transitory’ nature of domestic inflation. Powell’s comments sent shares of growth and innovation-related companies sharply lower as some market strategists cited the remarks as a watershed moment foretelling an end to the Fed’s ‘easy money’ policies which had fueled considerable gains and speculative excess across those market segments since the COVID-19 lows of 2020.

The BUZZ NextGen AI US Sentiment Leaders Index (“BUZZ Index” or “Index”) returned -3.48% during the month of November, trailing the S&P 500’s return of -0.69% as of the end of the month. Continue reading for details on recent performance and the latest Index reconstitution.

Apple Surges and Thematic Stocks Take A Hit in Mega-Cap Rally

Apple Inc (AAPL) led advancing stocks within the BUZZ Index during the recent period between selection dates of the Index. Shares of the storied manufacturer of personal computers and related personal computing and mobile devices have surged over 35% during 2021 as the company nears a $3 trillion dollar market capitalization. AAPL first reached the previously unthinkable $1 trillion market capitalization in August 2018 with many traditional analysts calling the symbolic achievement a sign of excess valuation. The company forged on, and investors continued to pile into its stock. Nearly two years to the day after crossing the $1 trillion-dollar valuation, AAPL crossed the $2 trillion-dollar mark and less than a year and a half later, AAPL is poised to surpass $3 trillion in value as investors continue to flock to the perceived safety of shares of the tech giant.

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.

Zillow Group was also featured in the top contributors to performance after months of selling which saw shares of the e-commerce real estate company decline from a high of nearly $200 per share to nearly $50 in a ten-month span. On December 3, the company announced a $750 million share buyback plan citing faster than expected progress in winding down the company’s troubled home flipping program dubbed “Zillow Offers”. Weakness in the company’s share price prompted comments from CEO Rich Barton who claimed "we see today as an opportune time to announce a share repurchase program and reduce the cash balance we built up to support Zillow Offers."

The top detractors to Index performance within the period between selection dates featured many high-growth stocks whose share price gains was seen by some market prognosticators benefitting from years of ‘easy-money’ policies enacted by the Fed. Many of the stocks featured in the top 10 detractors to performance were once top contributors to BUZZ Index outperformance. It will be interesting to see if broad investor sentiment toward these stocks shifts in the coming months or if the recent pullbacks encourage higher levels of positive investor sentiment, which may represent collective conviction in a ‘buy-the-dip’ opportunity.

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.

Market Insights – Trouble Beneath the Surface as Breadth Narrows

The headline drawdown in the benchmark S&P 500 and Nasdaq Composite Indices masked a larger rotation away from growth equities where a ‘flight-to-quality’ toward mega-cap U.S. equities supported the Index relative to broader measures of the U.S. stock market, which experienced significant corrections. As of December 9, the seven largest constituents of the S&P 500 Index accounted for nearly 28% of its value, an unprecedented level of concentration. The outperformance of these stocks relative to the broader market masks the weakness of the wider U.S. equity market relative to the dominant mega-caps. The Russell 2000 Index, which is comprised of the smallest 2,000 companies in the Russell 3000 Index, provides a measure of the broader market’s performance relative to the mega cap influenced S&P 500 Index during the recent period between selection dates of the BUZZ Index.

Source: BUZZ Holdings ULC, Bloomberg. Not intended as a recommendation to buy or to sell any of the securities mentioned herein.

Top Mega Cap Stocks Support Market Weighted Indices | 11/10/2021 – 12/09/2021

Source: BUZZ Holdings ULC, Bloomberg.Past performance is no guarantee of future results.

The S&P Kensho Moonshots Index (the “Moonshots Index”) measures the performance of equity securities of companies relevant to the theme of disruptive innovation. As can be seen in the chart below, both the Moonshots Index and the BUZZ Index underperformed the S&P 500 Index during November as alternative measures to large cap U.S. equity selection underperformed market cap weighted approaches whose performance were supported by the top mega cap constituents.

Alternative Measures of US Equity Underperformed | 11/10/2021 – 12/9/2021

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 increasing dispersion within broader domestic equity markets can also be observed by comparing the number of stocks within the Nasdaq Composite Index (“NASDAQ”) that are trading above their 200-day moving average relative to the price performance of the Index. As can be seen in the following chart, coming out of the lows of the COVID pandemic, the number of stocks within NASDAQ trading above their 200-day moving average grew as the performance of the index rose; however, the phenomenon (which is common in most market environments) began to reverse course in the first quarter of 2021. In the ensuring months, the number of stocks within NASDAQ trading above their 200-day moving average has fallen to just 35%, despite the Index’s continued positive performance throughout the year where it remains near its all-time highs.

Nasdaq Composite Index Breadth Weakens | 4/1/2020 – 12/9/2021

Source: BUZZ Holdings ULC, Bloomberg. Past performance is no guarantee of future results.

BUZZ Index December 2021 Rebalance Highlights

Healthcare Sector Holdings

The recent emergence of the new Coronavirus strain, dubbed Omicron, has the world once again on-edge, threatening to potentially undo much of the progress achieved in combating the virus. Early reports suggest the new variant spreads more easily, although it may cause less severe symptoms. As epidemiologists and investors search for clues of its true potency and current vaccine efficacy, governments around the world are once considering reinstating lockdowns. The biggest beneficiaries of Omicron may be the vaccine producers and pharmaceutical companies, who will likely be supplying the world with third and possibly fourth boosters in the coming months. All three major health care companies in the BUZZ Index, Novavax (NVAX), Moderna (MRNA) and Pfizer (PFE) saw increases in positive sentiment as investors anticipate more vaccines (and profits) resulting from the newly discovered Omicron strain. This month, MRNA joins NVAX with a maximum 3% weight in the Index, while PFE’s weight rises 63bps to 2.1%. It appears the demand for vaccines will be high for the foreseeable future, and investor sentiments are banking on these companies to benefit.

Work-from-Home Stocks

In conjunction with the boost to health care companies, another segment that saw a large resurgence in positive investor sentiment was work-from-home related companies. Over the past year, as lockdown restrictions have eased, more people have returned to the office, at least on a part-time basis. Consequently, the demand for remote work software and services subsided compared to the onset of the COVID-19 pandemic in 2020. With Omicron now in the public eye and cases once again on the rise, investors are expecting mobility restrictions to return, perhaps even putting some return-to-office plans on hold. This month, the two of the largest additions to the BUZZ Index are DocuSign (DOCU) and Zoom Video (ZM). DOCU and ZM address two widely important aspects of remote work, video conferencing and document signing. Increases in positive investor sentiment may foretell an increased reliance on digital technologies, should continued mutations and evolution of the Coronavirus result in a longer than expected remote work reality.

For more on the rebalance results, view the BUZZ Index reconstitution report.

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