Over the past weeks, a small spectrum of the financial markets has been put into havoc after a Reddit Community known as WallStreetBets decided to deliberately pump in money to invest in a few stocks that hedge funds have heavily shorted.
Some of these stocks include GameStop (NYSE: GME) and AMC Entertainment (NYSE: AMC), leading to wild and volatile swings in its stock price.
For example, GameStop’s share price has gone from about $18 at the start of the year to a high of $347 on 27 January 2021, or a gain of about 20 times in less than a month. As of 5 February 2021, its share price is at about $67. So, it has declined just as quickly as it has risen.
For long-term investors who are not keen to speculate on such wild swings in the market, it’s easy to ignore these stocks by not investing (or shorting) them, even if you think the current share price is not valued correctly. However, it’s worth noting that some of these stocks are also components of ETFs and long-term investors may have invested in these ETFs.
In other words, even if you want to ignore the entire WallStreetBets movement, you may indirectly be involved if you are investing in some of these ETFs that have exposure to these stocks.
In this week’s edition of 4 Stocks This Week, we look at some ETFs that have exposure to some of these “meme stocks” that have seen their share price increase over the past month. Unsurprisingly, all of these ETFs are based in the U.S.
Wedbush ETFMG Video Game ETF (NYSEARCA: GAMR)
The Wedbush ETFMG Video Game ETF (NYSEARCA: GAMR) is an ETF that currently has huge exposure to GameStop. For better or worse, this has thrown the previously not so known ETF into the limelight, even if this is just for a short while.
GAMR is an ETF that hold stocks from global firms which support, create or use video game. One thing worth noting is that the ETF only assigns a 10% weight within its ETF to conglomerates to (ironically) keep big names from dominating the index.
For example, the ETF invests in big and quality game companies such as Zynga, Nintendo, Activison Blizzard and Capcom. These are leading companies in the video game industry. Along with it, they also invest in other video game companies, one of which being – as you can guess – GameStop.
Because of the way the ETF was constructed, the ETF holdings in GameStop (2.07%) as of 31 December 2020 was similar to the other big companies such as Zynga (2.08%), Nintendo (2.09%) and Activision Blizzard (2.09%) in the ETF. This is despite GameStop having a market capitalisation of about $1.3 billion at that time compared to Activison Blizzard (NASDAQ: ATVI), which had a market capitalisation of about $70 billion.
But what happened in January 2021 was something we are sure even the ETF fund manager never expected.
Because of the rapid rise in GameStop price, GameStop, at one point in time, accounted for about 27% of GAMR weightage. This is ironic because even with its huge (and unsustainable valuation) of $24 billion on 27 January 2021, it’s still a smaller company than Activison Blizzard that has a market capitalisation of about $78 billion. Yet, it held a weightage in the ETF that is about 10 times more than Activison Blizzard.
From a pure price point of view, this wasn’t necessarily bad for investors. At the start of the year, GAMR was trading at $79. On 27 January 2021, its share price was at $110. It’s currently trading at $89.98 as of 5 February 2021. As of 5 February, GameStop accounts for about 8% of the ETF, which is probably still too high for the comfort of most long-term investors.
iShares Silver Trust (NYSEARCA: SLV)
Depending on who you read and believe, silver may (or may not) be a target for the WallStreetBets community for a short squeeze. Nevertheless, the idea that it could be a target was sufficient to push up the price for silver.
For a short period last week, silver prices spike to $30 per ounce. Since then, however, it has declined and is now trading at about $26.92, which is at a similar level to what it was trading at the start of the year.
The iShares Silver Trust (NYSEARCA: SLV) is an ETF that invests directly in silver on behalf of its investors. So if silver prices increase, the iShares Silver Trust will likewise increase in value.
On 1 February 2021, the ETF saw a high of $27.98. That would have given silver investors a return of about 10% compared to the start of the year had they sold their shares. Since then, prices of silver have decline and the ETF is currently trading at $24.48.
Defiance Next Gen Connectivity ETF (NYSEARCA: FIVG)
Defiance Next Gen Connectivity ETF (NYSEARCA: FIVG) is an interesting ETF as it seeks to invest in companies involved in the research, development and commercialisation of systems and materials used in 5G communication. FIVG invests in 77 companies, including Nokia Corp (NYSE: NOK)
Nokia’s stock has performed poorly over the past two decades. In 2020, the company was trading at the $4 to $5 range. However, on 27 January 2021, the company shot up to $6.55, up about 38% compared to the day before. This was short-lived. It lost all its gain by the next day and Nokia is currently trading at $4.22.
Defiance Next Gen Connectivity ETF holds about 3% of its portfolio in Nokia. The ETF wasn’t affected much by Nokia sharp spike in share price, especially since it barely lasts a day. However, the ETF has done over the past 1 year with its share price increasing from $26.47 on 6 February 2020 to $35.71 as of 5 February 2021, an increase of about 34%.
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4 Stocks This Week is not a recommendation from us to buy or sell any of these stocks. For investors who are keen to find out more, you should continue researching about them before making your investment decisions.