The CEO of an ETF provider breaks down why his firm filed for a fund designed to track heavily shorted stocks ripe for a squeeze
- As meme stocks continue to make headlines, one firm is prepping an
ETFto track short squeeze targets
- The High Short Interest ETF, trading under the ticker DUMP, aims to invest in stocks that "demonstrate high short interest."
- "What we're trying to find, first and foremost, are companies that have a fanbase," the portfolio manager told Insider.
As meme stocks have made a comeback this summer, an investment firm wants to launch an exchange-traded fund that tracks heavily shorted stocks ripe for a squeeze.
The High Short Interest ETF, which will trade under the ticker DUMP, aims to invest in stocks that "demonstrate high short interest" and a "potential catalyst for upside."
The ETF will primarily invest in companies that retail investors are interested in to capture the market zeitgeist, according to Matthew Tuttle, CEO and CIO of Tuttle Capital Management.
"What we're trying to find, first and foremost, are companies that have a fanbase," Tuttle told Insider. "So we're looking at what retail investors are buying ... what retail investors are talking about on social media."
Meme stocks are often defined by their sudden rally on unusually high trading volume and social media chatter. The names are also often heavily shorted by Wall Street institutions.
"The meme stock phenomenon is here to stay," he told Insider. "It'll pause from time to time. The stocks will switch from time to time. It won't always be AMC Entertainment and Gamestop."
This is why, Tuttle said, he sought to change the strategy of one of the 10 ETFs his firm manages to track stocks with high short interest, filing for the fund with the US Securities and Exchange Commission on July 1, 2021.
Tuttle did not give an estimate of when the fund would begin trading.
Currently, the suite of meme stocks - from favorites such as Blackberry, Clover Health, and Cassava Sciences - has expanded to newcomers like Support.com and Vinco Ventures.
"I think there is a demand for something entirely short-squeezed [focused]," Tuttle told Insider. The firm also manages an ETF called FOMO, which aims to invest in wider market trends.
"It's really driven by retail investors now having power that they've never had before," he added. "And what history teaches you about people with power is they don't give it up voluntarily."
Apart from stocks ripe for a squeeze, the ETF will also look at what hedge funds are buying, as well as companies that have a spike in options trading, he told Insider. The fund may also invest in ETFs linked to volatility, according to the filing.
Tuttle, like many traders, is looking to replicate the success of the GameStop phenomenon in January when individual investors piled into shares of the video game retailer.
The frenzy dominated market headlines for weeks at the beginning of the year, as the stock skyrocketed from around $40 to intraday highs of over $450. AMC Entertainment rallied as well, albeit to a fraction of the price GameStop achieved at its peak.
While Tuttle admitted the idea for a short-interest ETF has been done before - pointing to SQZZ, an ETF that launched in 2014 lets investors bet that heavily shorted stocks will turn around- he maintained his strategy is unique.
DUMP, according to the filing, will utilize a "proprietary quantitative process" that can use a number of different inputs, including price momentum to identify investment opportunities and companies that are potentially oversold.
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