Fundstrat’s Tom Lee has been a notable pundit in this wildly bullish stock market. Even in times of panic, like earlier this year when investors sold stocks shortly following Liberation Day and the tariff-ying reciprocal tariffs to be slapped on just about every nation, Tom Lee kept his cool.
Sure, he’s been mostly bullish over the years despite the odd market upset or correction. And while some may think he’s a perma-bull of sorts, I think the man deserves a bit of the spotlight for being right. Sure, you’re not going to sound as smart if you’re bullish. The bears tend to sound smarter. However, at the end of the day, it’s about who’s right and the track record of calls.
Tom Lee’s been bullish, but, most importantly, he’s been right
Though time will tell if Tom Lee can keep making the right calls (it’s been to just be bullish despite the pandemic, tariffs, inflation, and other worries we’ve been through), I do not find it mystifying as to why his new ETF, Fundstrat Granny Shots US Large Cap ETF (NYSEARCA:GRNY), have been met with so much success out of the gate. As more retail investors discover Tom Lee, his accurate calls as a market strategist, and his intriguing investment methodology, I do think the GRNY ETF’s assets under management (AUM) will swell further.
I’m a big fan of Tom Lee and think GRNY could lead the way for investors seeking an active approach to navigating a market that could be a bit harsher on those who just choose to stick with the S&P 500 via a low-cost index fund. Of course, the S&P 500 is still a great bet over the long run. There’s a reason Warren Buffett is such a fan of it. But in terms of active performance and alpha, I do think there’s a bit extra to be had with Tom Lee and his Granny Shots ETF.
In a prior piece, I highlighted reasons why the GRNY was worth the extra expense ratio (it’s about 0.75%, which is not at all outlandish for a more active ETF). While the GRNY held far fewer holdings than the S&P 500, I expressed delight at the fact that the holdings were well-balanced.
GRNY’s equal weighting brings ample value to the table
Indeed, you’re not going to have seven stocks comprising close to a third of the fund. While the GRNY isn’t precisely equal-weight (whereby all holdings have, more or less, equal weightings) at the time of this writing, its components will get an equal weighting come the next rebalancing. Indeed, 2-3% weightings across a few dozen stocks are what you’re getting.
Given that concentration risk is something for indexers to be mindful of, I’d argue that equal weighting brings so much value to the table. Of course, rebalancing entails greater costs, but in this case, I think it’s well worth it, especially considering the alternative is having less than a dozen stocks run away with close to 40% of the weighting of a portfolio that’s supposed to be “diversified” across 500 names.
More exposure to hyper-growth innovators
It’s not just the equal weighting that has me feeling more positive about GRNY compared to the S&P 500. It’s the mix of stocks that goes into the fund and, of course, Tom Lee’s expertise. You’re getting a good mix of the more-than-$1 trillion mega-cap tech titans. However, you’re also getting a good amount of exposure to the hyper-growth stocks that might allow GRNY to generate ample alpha.
Think Robinhood Markets (NASDAQ:HOOD | HOOD Price Prediction), Vistra (NYSE:VST), Cadence Design Systems (NASDAQ:CDNS), and, of course, Oracle (NYSE:ORCL), which delivered one of the best beats of the year. These growth companies are underrepresented in a run-of-the-mill S&P 500 ETF such as the SPDR S&P 500 ETF (NYSEARCA:SPY), but with the GRNY?
You’re getting fair representation in a class of names that I think can outperform the market. Of course, time will tell if GRNY’s market-beating run, up 23% year to date versus 12% for the SPY, can continue.
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