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- The rise of so-called meme stocks is creating "false markets" and shares of companies loved by the Reddit crowd should be avoided, Luke Ellis, Man Group CEO, said.
- We "avoid trading the names that they're super excited about because they're mostly creating false markets," he told CNBC.
- In March, Man Group built a system to track popular discussions on Reddit.
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The rise of so-called meme stocks is leading to the creation of "false markets" and shares of these companies should be actively avoided, Luke Ellis, CEO of Man Group, said Wednesday.
Ellis during a CNBC summit said that his company, the world's largest publicly listed hedge fund, uses technological screening and natural language processing to identify the stocks Reddit traders are hyping.
We "avoid trading the names that they're super excited about because they're mostly creating false markets," he told CNBC.
Meme stocks first emerged and rallied in January, when GameStop stock reached previously unfathomable heights on the back of enthusiasm from traders coordinating on Reddit's Wall Street Bets forum.
Since then, new stocks have been added to the list, while old favorites like AMC Entertainment have seen a resurgence.
AMC was among companies in the last three weeks that took advantage of its soaring stock price to issue new shares.
"I think it becomes really interesting when companies then take advantage of what are otherwise false share prices and issue stock, and I think we're going to see a radical shift in the cinema industry because one of the cinema chains has been able to use the pumping of the stocks on 'Wall Street Bets' in order to go and raise capital," Ellis said.
"That's going to put them at a significant competitive advantage compared to other people in their industry," the CEO added, referring to AMC.
In March, Man Group built a system to track popular topics on Wall Street Bets and track companies mentioned on the popular subreddit.