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There are discussions about making an ETF out of a new index called the Market Prophit Social Media Sentiment Index. The index holds 25 of the most-tweeted-about stocks.Dado Ruvic/Reuters

A couple of exchange-traded funds are already tracking social-media stocks.

But one soon could be tracking social media itself, according to a recent article in ETF.com.

A company called Market Prophit is currently in discussions with a variety of ETF issuers to make an ETF out of its new index called the Market Prophit Social Media Sentiment Index. This is a long/short smart beta-style index that aims to capture surgically the so-called sentiment factor on Twitter.

The index holds the 25 most-tweeted-about stocks and is reconstituted quarterly but rebalances daily.

The stocks' daily tweets are analyzed by an algorithm to determine whether the sentiment is positive or negative. The index will then be long or short, based on sentiment from the Twitterverse on a daily basis. The stocks get a sentiment score that also determines the weight in the index in addition to market cap.

Currently it holds such giants as Apple Inc., Amazon.com Inc. and Microsoft Corp. But it also holds some smaller companies, such as GoPro Inc., Tesla Motors Inc. and Baidu Inc. And yes, it also holds Twitter Inc.

The index is up 7 per cent this year. Not bad, considering the S&P 500 index is down 1.5 per cent. The outperformance this year is mostly from shorting stocks. It had 36 per cent of its stocks shorted prior to Aug. 24 because, well, that's what sentiment on Twitter told it to do. Over all, it has been a good year for any index or ETF that had some kind of short exposure in its strategy.

While this concept might seem far out, it is really just an evolution of ETFs such as the Global X Guru Index ETF (GURU) – which tracks hedge funds' top holdings using Securities and Exchange Commission (SEC) Form 13F filings – and the Direxion All Cap Insider Sentiment Shares (KNOW) – which tracks the stocks that display the most positive sentiment from insider buying and favourable analyst ratings.

What would make an ETF such as Market Prophit's different, however, is the crowdsourcing element. It is one thing to track legal filings but another to track anyone who is tweeting. Another difference is that legal filings are a bit more backward-looking, since they come out quarterly with a lag. Market Prophit's index is adjusting on a daily basis.

On the downside, this daily adjusting could mean the ETF racks up capital gains taxes from the increased buying and selling. Moreover, it would incur additional costs from borrowing stocks to short.

Among ETFs in registration that seem to capture imagination, this one ranks with ETFs looking to track Bitcoin, diamonds, the spread between China A and H shares and short-squeezed stocks.

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