Investing

'Inverse Cramer' ETF Has Not Outperformed the S&P 500 So Far

Tim Fries

Published: April 24, 2023 10:44 pm

Tuttle Capital Management had filed the paperwork to launch an “inverse Cramer ETF” in October 2022. It aimed to create a thematic fund that takes positions based on the opposite of what TV personality Jim Cramer would shill. The fund was launched last month, capturing the attention of many, but how has the fund fared so far?

The Problem with the Inverse Cramer Meme

Jim Cramer started his Mad Money show on CNBC 18 years ago, broadcasting almost every week. His show has an average viewership of approximately 380,000 people each week. Some have complained that his influence and tendency to make bad calls are not suitable for retail traders among his viewers who might act on his advice.

In other words, Jim Cramer spams financial advice on TV based on superficial info float.

In turn, it is bound that some of those calls will be so wrong as to be picked by social media as completely, hilariously wrong. More inverse calls are selected as memes ride the view count wave. This filtered cluster then believes that Cramer’s investment calls are inverse, forming the basis for confirmation bias.

Likewise, one must consider that the vast majority of calls, at around 96%, have underperformed the boring, low-risk Treasury bills (government debt) in the last 90 years.

The Market’s Test of the Inverse Cramer Meme

Spamming financial advice, but properly disclaimed as not one, is easy enough. Cramer’s mediatic reach has grown sufficiently enough to be tested by a real fund manager, Matthew Tuttle. His Tuttle Capital Management launched two Cramer-tracking ETFs:

• The Inverse Cramer ETF (SJIM)
• The Long Cramer ETF (LJIM)

If Cramer’s TV calls are worthless, this means that SJIM is outperforming the market. Effectively, the Inverse Cramer ETF (SJIM) is a long-short ETF. When Cramer is bullish on a particular stock, the fund is shorting it. And when Cramer is bearish, the fund takes a long position.

Since March 3rd, SJIM’s performance has been a mixed bag when contrasted against S&P 500 (SPX). By the end of March, it seemed that Cramer’s calls were inverse, which made SJIM outperform SPX. But this changed into an inverse relationship, indicating that most Cramer calls are not as inverse as the meme would suggest.

In turn, the Long Cramer ETF (LJIM) is more in sync with S&P 500 but not by much. This bullish tracker bets on the price of Cramer’s calls to go up. What stands out is that, sometimes, Cramer is unusually bad at reading the market and the macro environment that affects it.

But then again, this comes from Cramer’s treatment of finance as infotainment. Is this surprising? Not really.

The Illusion of Stock Picking Performance

The trick to outperforming stocks remains a mystery, with some investment caveats. One only has to recall the longitudinal study from 1964 to 2010 conducted by Research Affiliates centered around monkeys throwing darts. For the monkeys’ targets, they randomly picked 100 portfolios consisting of 30 stocks.

Annually, the monkeys threw darts at these stock picks. The result: 98 out of 100 monkey portfolios beat 1,000 stock-capped markets.

Considering that Jim Cramer can’t conduct due diligence for his picks with such frequency, this amounts to the same level of randomized noise. Moreover, Cramer’s TV stock-trading persona is at odds with his real-life persona.

In last May’s CNBC interview, Cramer said that 50% of his investments are concentrated in cash, 40% in US index funds (such as S&P 500 or Dow Jones), and 5% in gold/crypto. He likely encountered the exact statistics on stock investing as well.

This article originally appeared on The Tokenist