2021 Meme Stock Craze Nears $200 Billion
Down 40% from Peak as of 2Q This Year
Despite the meme stock craze surrounding GameStop, AMC Entertainment, and others reigniting among U.S. investors recently, the related thematic ETF (exchange-traded fund) market is fading, the Wall Street Journal (WSJ) reported on the 10th (local time).
According to the report, the size of the U.S. thematic ETF and mutual fund market, which approached $200 billion in 2021, has plummeted by nearly 40% to about $120 billion (approximately 165 trillion won) as of the second quarter of this year. The market has experienced nine consecutive quarters of net outflows through the second quarter, with capital withdrawals totaling $20 billion (about 27 trillion won) during this period. This contrasts sharply with the first quarter of 2021, when net inflows into U.S. thematic funds reached a record high of $35.8 billion, marking the true start of the meme stock frenzy.
The WSJ explained, "In 2021, when interest rates were ultra-low and small growth stocks surged, thematic investment strategies attracted billions of dollars, with many trying to follow Cathie Wood's Ark Investment, which was the industry's hot topic." It added, "The thematic ETFs that mushroomed at that time began to disappear following the U.S. benchmark interest rate hikes, leaving investors who were waiting for the revival of meme stocks without a place to go." On the other hand, GameStop, which led the meme stock craze with a 2,400% surge in stock price throughout 2021, has recently seen its stock price fluctuate again following the return of the 'lead ant' Roaring Kitty. It has risen 41% so far this year.
The recent record highs set by the three major U.S. indices have also been cited as a cause of the contraction in the thematic ETF market. In particular, the S&P 500 and Nasdaq have risen nearly 25% and 27%, respectively, over the past year, fueled by the record rally of AI chip leader Nvidia. In a situation where simply tracking the index guarantees high returns, there is little incentive for investors to take on risky investments like thematic ETFs. Additionally, the high fees of thematic ETFs (0.75%), which can be up to 37 times higher than index ETFs (0.02%), are also blamed for the capital outflows.
Dave Mazza, CEO of Roundhill Investments, which shut down its meme stock-tracking ETF two years after its launch last year, said, "The speculative frenzy (in thematic ETFs) fueled by the low-interest-rate environment is over," and "Now, many investors highly value portfolio diversification and prefer more practical themes."
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