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Meme beats and theme exchange-traded funds have made dramatic gains in recent weeks, buoyed by signs of a possible spike in inflation and legislation paving the way for a clean energy boom.

The very equity ETFs that were emblematic of the growth stock-fueled market rallies of 2020 and 2021 surged, with the Roundhill Meme ETF (MEME) up 24% from its July 26 low, after plunging 60 % since its launch in December . The VanEck Social Sentiment ETF (BUZZ) is up 17%, partially reversing a 49% drop from its November highs, and the SoFi Social 50 ETF (SFYF) is up 16% after falling 43%.

ETFs carrying animal spirits also increased those targeting renewable energy stocks, housing, infrastructure and robotics, which benefited from strong inflows, in many cases after suffering large outflows from the top of the charts. stock markets at the end of last year.

Ark Invest’s high-profile Innovation ETF (ARKK), a barometer of enthusiasm for a swath of hard-hitting tech stocks often trading at speculative valuations, has also recovered 14.8% since July 26, recovering a small slice of its 65% loss since November.

The funds all outpaced the S&P 500’s fall, but beat its 7.4% rise since late July, living up to their billing as high-beta, sentiment-driven investments loved by the crowd of Reddit WallStreetBets.

Several renewable energy ETFs have also been riding the same wave, with the Invesco Solar ETF (TAN) jumping 21% since July 26, the iShares Global Clean Energy ETF (ICLN) up 20% and the First Trust Nasdaq Clean Energy Index Fund (QCLN) firming 22%.

“These funds tend to have high betas, so it shouldn’t be too surprising that as the US stock market has rallied, these funds have also recovered some ground in recent weeks,” said analyst Kenneth Lamont. of senior funds for liabilities. strategies at Morningstar.

The main catalyst appears to be rising expectations that runaway US inflation is about to peak or has already peaked, potentially allowing the Federal Reserve to ease its rate-hike cycle later this year. year and begin reducing rates in 2023.

This in turn translates into a lower interest rate used to discount the expected future earnings of high-growth companies.

“Investors are more confident that the Federal Reserve will be able to slow the economy and avoid recession, and those investors are ready to take on more risk as we head into the fourth quarter and into 2023,” said Todd Rosenbluth, chief financial officer. research at VettaFi. .

A second driver, for some stocks at least, appears to have been the Senate’s approval of the Cut Inflation Act, which, among other things, paves the way for the largest single investment in clean energy programs. and climate in United States history.

“Legislation supporting clean energy efforts has been a boon for related stocks, perhaps trying to ward off tactical or growth-oriented investors,” said Lois Gregson, senior ETF analyst at FactSet.

Rosenbluth saw this trend as having more legs.

“Ongoing climate change legislation has renewed interest in renewables and other thematic ETFs. These probably have more resilience than the less profitable businesses that benefit from interest via memes,” he said. “Meme investing seems like an eclectic, amorphous group of companies that gain a following and then that following fizzles out.”

ETF investors – if not necessarily those in the underlying stocks – seem to agree with this prognosis. TAN, ICLN and QCLN took in $291 million in the two weeks to August 5, according to FactSet data, after shipping $1.2 billion since the start of November 2021.

The renewed enthusiasm for these narrow bets contrasts with that for US equities as a whole, with three market-wide ETFs – Vanguard S&P 500 (VOO), iShares Core S&P 500 (IVV) and SPDR S&P 500 ETF (SPY) – seeing collective entries of only 1.9 billion dollars in the fortnight preceding August 5, no acceleration in the pace of flows, which have reached 55.3 billion dollars since November.

Despite the soaring price of meme ETFs, investor enthusiasm for the vehicles appears low, with most such ETFs seeing flat or slightly negative flows in recent weeks, according to FactSet, although key holdings such as Coinbase and AMC Entertainment have jumped 70 per cent or more since late July.

However, the social media sentiment for their underlying holdings certainly seems to be back.

Marina Goche, managing director of Sentifi, an alternative data provider, said she’s seen a surge in “chatter” on social media, news forums and blogs around actions like Bed Bath & Beyond. up 125% since late July), AMC and GameStop even before their prices skyrocketed.

“Just like last year, alternative sentiment data has again emerged as an important tool to indicate early price rumors, with many market signals occurring on online forums like Reddit before prices hit. are moving,” Goche said.

“I was surprised that this investing trend reappeared. It wasn’t just a one-time fad, but there are more prudent ways for ETF investors to make their money grow,” Rosenbluth said.

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