ETFs that track meme stocks have been surging, as 'animal spirits' return to markets

Meme-stock ETFs have jumped in November and outperformed major indexes as bullish euphoria grips investors heading into year-end.

• Meme stocks have been on the rise recently as November's market rally brings a wave of bullishness. 
• A handful of meme-stock ETFs have beat the S&P 500 over the last trading week.
• Still, the ETFs have fallen much further from all-time highs than the S&P 500.

The meme-stock boom of 2021 has waxed and waned since the pandemic heyday, and the latest rally in the market is bringing the speculative bets back into focus as investors chase the year-end equity rally. 

In a note on Tuesday, DataTrek Research cofounders Nicholas Colas and Jessica Rabe broke down the recent performance of several exchange traded funds with exposure to popular meme stocks, including the Roundhill MEME ETF (MEME), the Robotics & AI ETF (BOTZ), and iShares Russell 2000 Growth (IWO). 

"The upshot: the reemergence of meme stocks shows investors' animal spirits are starting to run hot again," DataTrek said. 

Each of the funds have squarely beaten the returns of the S&P 500 over the five trading days leading up to Tuesday, even as equities saw a broad rally and Treasury yields declined.

MEME, BOTZ, and IWO have seen gains of 10.8%, 6.6%, and 5.9%, respectively, while the S&P 500 has gained 3.1% in that stretch. In addition, MEME and BOTZ have outperformed the benchmark index since it hit a low on October 27.

The table below shows the top holdings for each of the three ETFs, and the individual holdings' performance over the last five days, one month, and year-to-date. 

"The average returns of these 3 ETFs' top 5 holdings best the S&P over the last 5 days, 1 month and YTD, and often by significant margins," according to DataTrek.

It's worth noting that many of the most famous meme stock name, like GameStop and AMC, are down considerably in that stretch, signaling that investors recently are placing bullish bets on broader baskets of names rather than attempting to pick individual winners.

Still, the recent outperformance for funds with exposure to meme stocks reflect "generally bullish market conditions," Colas and Rabe maintained.

DataTrek also noted on Tuesday that S&P 500 sector correlations suggests the November stock rally should continue through the end of the year.  The historical indicator points to investor confidence, and a key gauge is hovering near levels seen during previous bull markets.