The Problem with Meme Stock ETFs and Timing

The Problem with Meme Stock ETFs

Meme stock mania returned for a second day, boosting a group of ETFs while reminding investors how volatile stocks like GameStop Inc. can be and raising questions about the wisdom of chasing disappearing gains and losses quickly.

The video game retailer last traded up 65% after more than doubling to nearly $65 per share, a near quadrupling from Friday’s closing stock price, of $17.46. Earlier this week, shares gained 75% on Monday, and at one point during the session, they more than doubled.

Many of the 87 U.S.-listed exchange-traded funds that hold GameStop shares are benefiting from the rise.

THE Amplify Video Game Technology ETF (GAMR)which holds a 3.1% weighting in the stock, gained 1.9% on Monday and another 5.5% on Tuesday.

THE Schwab Crypto Thematic ETF (STCE)which holds 1.9% of the company’s capital, increased by 3.2% on Monday and 4.9% on Tuesday.

GameStop’s re-emergence as a meme stock is unfortunate timing for the defunct Roundhill MEME ETF (MEME). This fund closed in December due to lack of investor interest. It only had $3 million in assets under management.

At the time of its close, MEME held a 4.1% position in GameStop, as well as significant stakes in Affirm, Coinbase, Spirit Airlines and Robinhood – other meme and near-meme stocks that have soared this week.

MEME’s shutdown is indicative of the difficulties with timing meme stocks and how their gains can be fleeting. The exchange-traded fund launched in December 2021, 11 months after GameStop’s first meme stock rally ended.

Then it closed its doors last December, five months before the next stock market rally began.

In other words, MEME missed both meme stock rallies, but was exposed to all the downsides of meme stocks.

This is a cautionary tale for fund issuers who might decide to launch similar ETFs in the future: Timing is everything when it comes to meme stocks.

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