In a financial landscape fraught with uncertainty, Fundstrat’s latest offering, the Granny Shots US Large Cap ETF (GRNY), has emerged as a shining star—at least on the surface. Claiming to leverage disciplined, thematic investing strategies, the fund has managed to attract substantial assets and outperform broader benchmarks. However, this apparent success warrants a critical examination. Are we truly witnessing the dawn of a new era of reliable investing, or simply riding the hype wave of a well-marketed product that may falter under the weight of its own assumptions? History demonstrates that even the most promising funds, especially those centered on thematic and multi-trend stocks, often stumble when market conditions shift unexpectedly. The challenge lies in distinguishing genuine skill from fortunate timing and narrative-driven investing that can be ephemeral.
The Overconfidence in Thematic and Quantitative Strategies
Fundstrat’s approach hinges on selecting stocks that tick multiple thematic boxes—like AI, cybersecurity, and generational trends—believing this multiplies their resilience and growth potential. While this sounds logical, it overlooks the inherently unpredictable nature of technological shifts and consumer behaviors. Relying heavily on these themes creates a false sense of security. Markets can, and do, shift suddenly, rendering yesterday’s winning themes irrelevant. The assumption that stocks benefiting from multiple themes can withstand adverse conditions over time is optimistic at best. Effective investing isn’t just about stacking stocks under the right labels; it requires adaptability and a keen sense of timing—qualities that no matter how disciplined, are elusive even for seasoned managers. Past star managers have often faltered precisely because they clung too tightly to their initial thesis amid shifting fundamentals.
Celebrating Short-Term Outperformance Without a Long-Term Framework
The impressive early performance of GRNY is undeniable. Outperforming the MSCI USA Large Cap Index by nearly 6 percentage points since inception and ranking among the top fund categories this year paints a picture of unqualified success. Yet, short-term outperformance can be misleading. Many funds have dazzled investors with quick gains only to face substantial underperformance later. The real test is whether the fund can sustain this momentum over years, not months. Lee’s assertion that a disciplined, rules-based approach can secure long-term outperformance is overly optimistic. It underestimates the impact of random market shocks, sector rotations, and economic downturns. Investors should question whether the fund’s current success is rooted in genuine, core strengths or mere luck and sectoral biases.
The Danger of Narrative-Driven Investment and Market Fads
Fundstrat’s branding of the fund as the “Granny Shots” ETF, referencing a popular underhand basketball shot, risks conflating gimmick with strategy. While catchy branding may attract attention, it should not distract from underlying weaknesses. Much of the fund’s appeal is tied to compelling stories—AI, millennials, cybersecurity—that captivate investor imagination. But stories are often fibs we tell ourselves to justify current positions, not predictors of future performance. As sentiment shifts away from these themes, the fund’s holdings could become liabilities far more than assets. The danger of narrative-driven investing is that it can lead to herd behavior, inflating valuations in the short term while exposing investors to significant losses when the tide turns.
The Costs and Risks of a Narrow, Rebalanced Portfolio
The fund’s concentrated portfolio of approximately 35 stocks, rebalanced quarterly, introduces another layer of risk. While rebalancing can offer a tactical advantage, frequent adjustments can incur transaction costs and tax implications, especially for retail investors. Moreover, a narrowly focused portfolio—circling around a handful of themes—limits diversification. The best-performing stocks today may be tomorrow’s laggards, and heavy reliance on a few sectors increases vulnerability. The assumption that stocks being affected by multiple themes will be immune to downturns ignores the reality that all sectors are interconnected and susceptible to macroeconomic shocks.
Chasing Growth with Riskier Assumptions
Ultimately, the allure of high returns—like those achieved by GRNY—can tempt investors into overly optimistic assumptions about the fund’s durability. While the thematic approach based on “story arcs” sounds intuitive, it may also lead investors astray into complacency, thinking that these trends will persist indefinitely. Market cycles are merciless, and even the most well-reasoned strategies can be blindsided. A centrist, liberal approach to investing advocates for a balanced skepticism—they understand that no strategy is infallible. Celebrating rapid growth without acknowledging its fragility risks setting investors up for painful reevaluations when the inevitable correction arrives. The challenge is maintaining discipline amidst the allure of quick wins and compelling narratives, recognizing that sustainable success in investing is rooted more in humility than in confidence.