NEW YORK, July 10 (Reuters) – Investors chasing market themes are learning a familiar lesson: a hot investment doesn’t necessarily make for a profitable one.
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But the fund, with $20 million in assets, remains below its October 2025 launch price, leaving investors who bought at inception underwater despite the 2026 rebound.
The performance gap highlights a principle often overlooked during periods of market euphoria: investment returns can be driven in the short term by fleeting qualities such as popularity and buzz, but the longer you hold an asset, the more factors such as profitability, competitive position and prices paid tend to take precedence.
“If you are looking to invest for the long term, however you define that long term, then you need to really understand the fundamentals of the business and what that business could potentially be worth,” said Olga Bitel, chief investment strategist at William Blair Investment Management.
“Just because retail investors participate en masse in these exciting companies and IPOs, doesn’t mean you shouldn’t do the work and figure out what this thing actually does, where it fits into the ecosystem and whether it can deliver on the promises.”
VALUATION MATTERS
The companies have captured investor interest through rapid growth and leadership in emerging technologies. But it’s unclear that their financial results will match the sky-high expectations any time soon, and history suggests that even good businesses can generate poor returns when lofty expectations feed ultrahigh valuations.
MODELING THE MEME STOCKS
High expectations aren’t the main problem for the meme stocks, which by definition come out of nowhere to catch investors’ fancy at times when markets are setting new highs and momentum – the practice of buying assets when they go up and selling when they fall – is the most prominent dynamic. But the memes and the mega-IPOs can be linked by a prevailing bull-market belief that the worst mistake you can make is to be on the sidelines.
Holdings are selected largely on measures of implied volatility and retail-trading interest, effectively making the portfolio a bet on investor sentiment.
“The MEME ETF is designed to provide investors exposure to stocks with the potential for meme-like behavior, and that comes with volatility in both directions,” Dave Mazza, Roundhill Investments CEO, said in a statement. “The fund’s inception coincided with the peak of the last retail cycle, which speaks to timing rather than to whether these stocks can deliver strong moves on the upside, as we have seen this year.”
Markets have repeatedly shown that high expectations can become a burden. Investors who buy at peaks of optimism often find that even strong operating performance is not enough to support elevated share prices.
“The retail army of traders certainly helps trends happen, but there’s obviously no free lunch in investing,” said Will McGough, chief investment officer at Prime Capital Financial.
Reporting by Chibuike Oguh in New York, editing by Colin Barr and Lincoln Feast.
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