GameStop Saga Reminds Us Meme ETFs Are a Bad Idea
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If you blinked, you might have missed it. The surge that sent shares of GameStop Inc. to as high as $64.83 from $17.46 last week nearly vanished a few days later.
On Friday, the stock briefly traded below $20 after the video game retailer announced that it would raise capital by selling up to 45 million shares.
A steep drop in the company’s first quarter revenues—from $1.2 billion last year to $882 million this year—further dented momentum in the stock (though meme stock investors, who hardly care about fundamentals, were probably more turned off by the share sale than the falling sales figures).
GameStop’s wild ride illustrates just how ephemeral meme stock rallies can be, and as I wrote in a piece last week, creates a challenge for any exchange-traded funds that wish to capitalize on the meme stock trend. According to etf.com's stock finder tool, GameStop shares are held in 83 ETFs, with the largest allocation, 6.7%, in the Amplify Video Game Tech ETF (GAMR).
MEME's Closure
The Roundhill MEME ETF (MEME) shut down in December after it fell sharply while attracting little investor interest. It had a mere $3 million in assets under management at the time of its shuttering.
Even if MEME were around today, it might not have benefited much from GameStop’s short-lived surge.
Sure, the fund would have spiked dramatically last week, but just like GameStop, much of those gains would have been quickly wiped out—and then what?
Would investors buy into the ETF thinking that another meme stock rally was in the cards? Probably not.
Meme stock rallies are so unpredictable that it’s hard to see any exchange-traded fund building a sustainable base of assets with a meme stock strategy.
Not to mention, most meme stock investors do it for the thrill and would rather YOLO into individual meme stocks rather than an ETF where their exposure to a GameStop or an AMC would be limited.