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  • Thematic Investing

    Value Back in Vogue as Inflation and Recovery Expectations Soar

    Jamie Wise, Founder & CEO of BUZZ Holdings ULC
    March 19, 2021
     

    Global equity markets held steady following the February BUZZ NextGen AI US Sentiment Leaders Index (the “BUZZ Index”) rebalance as vaccine rollouts accelerated across the developed world, leading to growing optimism surrounding the economic recovery. Over 250 million doses were administered globally during February, double the amount from the previous month. A strong fourth quarter U.S. corporate earnings season concluded with 79% of S&P 500 companies beating expectations. As the economy strengthened, inflation concerns mounted, and the yield on the benchmark U.S. 10-year note spiked higher. Surging inflation expectations spurred a rotation within equity markets as price momentum and technology stocks fell sharply while shares of old economy “value” companies and financials soared.

    Economic Re-opening Stocks Stabilize Returns

    The dynamic nature of sentiment insights featured within the BUZZ Index insulates it from market environment shifts such as the move toward value that occurred over the past month. The top five contributors to performance featured old economy stocks such as American Airlines (NASD: AAL), Boeing (NYSE: BA) and Ford Motor Co (NYSE: F) together with two gaming focused companies which continue to benefit from regulatory tailwinds whereby an increasing number of U.S. states are allowing legal online gambling initiatives.


    Top Contributors: February 11, 2021 – March 11, 2021
    Company Ticker Average Weight (%) Return Contribution (%)
    American Airlines AAL 2.91 1.00
    Boeing Co BA 2.12 0.53
    DraftKings Inc DKNG 3.22 0.48
    Ford Motor Inc F 3.30 0.47
    Penn National Gaming PENN 2.01 0.35

    Source: BUZZ Holdings ULC, Bloomberg. Past performance is no guarantee of future results. Index performance is not illustrative of fund performance. For a complete list of holdings in the ETF, please visit www.vaneck.com.

    Conversely, the constrained nature of a price momentum approach leaves little room to hide amidst a changing market environment. The MSCI USA Momentum Index (the “Momentum Index”), which seeks to reflect the performance of the momentum factor, produced a return of -6.9% compared to -0.78% generated by the BUZZ Index in the period from the February to March rebalance dates. Three of the bottom five contributors to performance within the BUZZ Index are featured in the Momentum Index, including Pinterest Inc (NYSE: PINS), Zoom Video Communications (NASD: ZM) and Tesla Inc. (NASD: TSLA).


    Bottom Contributors: February 11, 2021 – March 11, 2021
    Company Ticker Average Weight (%) Return Contribution (%)
    Virgin Galactic Holdings SPCE 2.25 -0.84
    Novavax Inc NVAX 2.23 -0.50
    Pinterest Inc PINS 2.04 -0.35
    Zoom Video Communications ZM 1.91 -0.35
    Tesla Inc TSLA 2.70 -0.30

    Source: BUZZ Holdings ULC, Bloomberg. Past performance is no guarantee of future results. Index performance is not illustrative of fund performance. For a complete list of holdings in the ETF, please visit www.vaneck.com.

    Sentiment Stock Highlight: American Airlines

    American Airlines (NASD: AAL) has long been featured in the BUZZ Index, yet aggregate investor sentiment had not previously been high enough to warrant a top spot in the index. From the period of January 2019 through May 2020, AAL was in the BUZZ Index in 12 of the 17 rebalances, with an average weighting of 0.65%. As the stock fell 70% from its pre-pandemic levels, online conversation began to soar alongside positive investor sentiment. AAL re-entered the BUZZ Index in June 2020, and in the nine months that followed, AAL was featured each month in the BUZZ Index at an average weight of 2.29% while the stock rallied over 65%.

    American Airlines Stock Price: January 1, 2019 - March 15, 2020

    American Airlines Stock Price: January 1, 2019 - March 15, 2020

    Source: BUZZ Holdings ULC, Bloomberg. Past performance is no guarantee of future results. Index performance is not illustrative of fund performance. For a complete list of holdings in the ETF, please visit www.vaneck.com.

    BUZZ Index – March 2021 Rebalance Highlights

    Norwegian Cruise Lines

    The most notable addition to the BUZZ Index this month comes in the form of Norwegian Cruise Lines (NYSE: NCLH). Surging inflation expectations spurred a rotation in the market as momentum and technology stocks fell sharply in late February and early March. Meanwhile shares of old economy, value companies surged. Consumer discretionary stocks proved resilient as vaccine rollouts accelerated across the developed world, leading to growing optimism surrounding the economic recovery. Over the past year, travel related stocks were unsurprisingly some of the hardest hit names, and while they have recouped some losses, they have still largely underperformed. After falling 85% last year during the COVID-19 crash, NCLH has since nearly quadrupled in price, yet the stock remains 65% below its pre-COVID levels. Investor sentiment has steadily been climbing, and this month, NCLH joins the BUZZ Index for the first time ever with a 0.59% weight, accompanying Carnival Corp. (NYSE: CCL) as the second cruise line featured in the Index.

    Energy Sector

    Most investors remember the crash in oil prices during the peak of the pandemic last March, culminating in April when crude oil futures traded negative, a previously unfathomable event. At the time, the demand shock from COVID-19 was so great that people were unable to find storage for the barrels of crude that were building up. Much like the travel and leisure sector, energy stocks plummeted as global demand dried up. However, since April 2020, the price of crude has steadily been climbing, and remarkably reached pre-COVID levels this month after rising almost 40% year-to-date. While the positive contributing factors have been plentiful—the ongoing global recovery, vaccine optimism, a weak U.S. dollar—many market pundits remained skeptical of the rally. Recently, positive online investor sentiment toward oil and gas stocks has been picking up. This month, two of the 11 new names in the BUZZ Index are energy stocks: Marathon Oil (NYSE: MRO) with a 0.78% weight, and Occidental Petroleum (NYSE: OXY) with a 0.63% weight. The current energy stock in the Index, Exxon Mobil (NYSE: XOM), also saw increasing investor sentiment over the past month, resulting in its Index weight increasing to 1.18%. Investor sentiment is suggesting that this rally in the energy sector may be for real and could have more room to run.

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

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  • Authored by

    Jamie Wise
    Founder & CEO of BUZZ Holdings ULC