By Mark DeCambre
The socially fueled trading trend is even spreading to other stocks like Clover Health Investments Corp. CLOV and Wendy’s WEN , and the Securities and Exchange Commission’s head Gary Gensler reiterated that the regulator is monitoring the trend for any signs of shenanigans .
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What’s the buzz?
We spoke to John Hoffman, Invesco’s head of exchange-traded fund and indexed strategies for the Americas, earlier this week, and he explained how Invesco Dynamic Leisure and Entertainment ETF’s /zigman2/quotes/200258677/composite PEJ +0.39% rebalancing at the start of this month resulted in the smart-beta ETF kicking out highflying meme stock AMC.
PEJ, referring to the Invesco ETF’s ticker symbol, also is an important reopening trade, with inflation and the economic recovery front of mind.
Meanwhile, Invesco also is working on two crypto-focused ETFs, according to CoinDesk
Are you not AMC Entertained?
The story of PEJ is fairly simple but interesting because it arguably highlights some of the benefits of smart-beta products.
The ETF, which uses factors such as momentum, value, and earnings growth, among others, in an effort to outperform the broader market, punted on AMC because it no longer fit the criteria for inclusion as designated by the smart index it replicates.
PEJ is pegged to the Dynamic Leisure & Entertainment Intellidex Index and is reconstituted quarterly in February, May, August and November.
In this situation, on its quarterly rebalance AMC was kicked out of the index and so was also removed from the fund. As a result, “you’re removing the emotion from the investment process…and you are doing it systematically,” Hoffman said.
CFRA’s Todd Rosenbluth said that the ETF avoided domination by AMC, which a number of funds, including briefly PEJ, have faced, given the surge in value of the asset that is raising concerns among critics skeptical of the movie chain’s ability to produce revenues and earnings to match its newfound market value. AMC boasts a market cap of about $22 billion.
Hoffman said that PEJ is being used as a reopening play in the economic recovery from the pandemic and drawing strong inflows. It is up 33% so far this year, which is a healthy return, considering that the Dow Jones Industrial Average /zigman2/quotes/210598065/realtime DJIA +0.45% and the S&P 500 index /zigman2/quotes/210599714/realtime SPX -0.03% are up nearly 13% so far in 2021 and the Nasdaq Composite /zigman2/quotes/210598365/realtime COMP -0.52% has gained over 8%. The small-capitalization Russell 2000 index /zigman2/quotes/210598147/delayed RUT +0.30% is up more than 17%.
Hoffman said that the design of Invesco smart-beta funds have yielded periods of very strong performance at economic inflection points, including back during the 2008-09 financial crisis.
Back in 2009, PEJ delivered a 42% annual return, and followed that up with a 42% gain in 2010, FactSet data show.