VanEck Ties Latest Funds to Positive Analyst Sentiment

It’s a wild idea — stocks with good reviews from analysts actually doing well — but hey, it just might work.

VanEck is looking to the experts for its latest strategy. The firm filed this week for two funds that hold companies with positive outlooks from analysts. Roughly 80% of allocations in the VanEck MSCI EAFE Analyst Sentiment ETF and the VanEck MSCI EM Analyst Sentiment ETF will be directed toward companies with favorable forward estimates for cash flow, earnings per share, price targets and sales, along with upgrades in analyst recommendations, according to SEC filings. The funds track the MSCI Europe, Australasia and Far East index and the MSCI Emerging Markets index, respectively.

“It will be interesting to see how the track record of these funds develops since it may act as a kind of scorecard for analysts covering the stocks in each index,” said Zach Evens, a Morningstar manager research analyst. While fund managers often consider analyst sentiment as one of many inputs, Evens is unaware of any ETFs that explicitly and systematically allocate only to stocks with positive analyst sentiment.

What’s the Buzz?

Analyst research plays a significant role in how investors interpret corporate performance, earnings prospects and valuation. While they don’t change fundamentals, analysts’ estimates do attempt to anticipate future performance. Stocks with the highest analyst sentiment scores have consistently outperformed those with the lowest scores over long periods, according to an MSCI study.

The new funds also build on VanEck’s earlier sentiment-based investing strategy. The firm’s Social Sentiment ETF (BUZZ), whose holdings are determined by positive opinions expressed across blogs, news articles and online forums, is up more than 35% year to date. Allocations are capped at roughly 3% of the portfolio, and while many of its largest holdings are familiar names — Tesla, Palantir and Nvidia — GameStop remains among its top positions.

Trust Fall. There is, however, a lingering issue with analyst estimates. In 2003, the Global Research Analyst Settlement barred business-related communication between analysts and bankers at the same firm, without legal or compliance oversight. The goal was to keep analysts from cheerleading for their investment banker buddies’ stock picks. But the SEC terminated the rule this month, arguing that its removal would “lower compliance friction.”
Former SEC Chair Arthur Levitt warned that the move weakens investor protections. “Don’t be fooled by the promise that other regulations provide this separation,” he said in a Wall Street Journal opinion column. He added that regulators are already considering loosening analyst “quiet periods” — the time when they can publish research on their own bank’s transactions — calling it “the natural pattern of regulatory surrender.”