The explosive growth of the ETF industry has attracted a full range of new entrants this year — from smaller individuals to the largest hedge funds in the world. More and more fund managers are making their foray into the world of ETFs.
Vanguard founder Jack Bogle used to talk about the rise of ETFs being evidence of “indexing gone Hollywood.” But with the rise of prominent names now getting involved, some might argue ETFs themselves have “gone Hollywood.”
Taking ‘Granny Shots’
Fundstrat Global CIO Tom Lee just launched the FundStrat Granny Shots U.S. Large Cap ETF (GRNY), which has already amassed nearly $500 million in under a month. Lee has gained a large and loyal following over the years as one of Wall Street’s top institutional analysts. He also boasted a rock star track record as Chief Equity Strategist back at JPMorgan.
The active large-cap equity ETF, which charges 0.75%, mirrors a core strategy Fundstrat has used since 2019 and is only now offering as an ETF. The strategy blends qualitative and quantitative analysis. It takes a top-down fundamental look at seven investing themes across differing time horizons. It uses a bottom-up quant screening process to select the strongest stocks that align with at least two of the seven themes. The approach factors in both longer-term strategic themes. These include AI and cybersecurity or millennials and the global workforce. They also include shorter-term, tactical themes, like style tilt and seasonality.
Lee told me the new ETF arose in response to client demand. “Many of our clients managed capital using the list and found the quarterly rebalance to be tax-inefficient and somewhat onerous,” he said. “And some began to ask us to offer an asset management product to simplify this process.”
The term “granny shots” refers to an underhanded free throw shot in basketball popularized by NBA Hall of Famer Rick Barry of the Golden State Warriors. Many athletes scoffed at this decidedly less macho approach, but the unique style led Barry to achieve a 90% free throw percentage. Similarly, GRNY’s strategy mirrors the “granny shot” philosophy of a humble, low-risk, high-reward approach to achieve consistent results with minimal effort and a strong margin of safety.
Lee also emphasized the importance of macro trends. He stated that 70% of a stock’s return is tied to mega-themes. He also echoed Stan Druckenmiller’s view that 80% of returns are nonstock-specific. So far, GRNY has outperformed the S&P 500 by about 2% on an NAV basis, with strong sector representation among technology and industrials. Right now, top holdings include Axon, Tesla, Netflix, Eaton, and CrowdStrike. This reflects the fund’s focus on timely, high-growth themes.
Betting on Higher Inflation
On the opposite side of the bull-bear spectrum, renowned economist Nouriel Roubini, so-called “Dr. Doom,” has also dipped his toes into the ETF market. The Atlas America Fund (USAF) is a multi-asset fund primarily focused on real assets, gold, soft commodities, real estate, along with a sprinkling of U.S. Treasuries. The fund has an expense ratio of 0.75%. The strategy is all about hedging long-term inflation and making real assets more accessible to the average investor. It’s meant to serve as an alternative to the fixed income portion of the traditional 60/40 models. It adjusts for growth and inflation trends along the way.
In typical somber fashion, Roubini said several days ago he believes the new administration under President-elect Trump could push inflation up as high as 5%. He said that the U.S. economy should brace itself for slower growth — citing global tariffs being imposed on Mexico, Canada, and China, as well as promised tax cuts and certain climate-related policies.
Weathering the Storm
Perhaps the biggest buzz around recent launches has been tied to Ray Dalio’s Bridgewater joining forces with State Street Global Advisors to file for the SPDR Bridgewater All-Weather ETF. Dalio’s famous All-Weather strategy has focused on risk allocation based on the volatility of different asset classes. These include stocks, bonds, and commodities. Risk-parity funds overall have underperformed the broader benchmarks in recent years. Wealthfront, for instance, intends to shutter its risk-parity fund in January after several years of disappointing returns. In extreme market conditions, such as were present in 2022, correlations often break down and lead to liquidity concerns.
For State Street, the goal is to bring alternative investment strategies to a wider retail investor audience. The issuer has been a pioneer when it comes to partnerships and has already taken bold steps to democratize access to more exclusive markets. However, in order to translate Dalio’s strategy directly to an ETF, State Street may need to adjust certain parameters to allow for a smoother transition.
The ETF landscape continues to evolve rapidly, with the likes of Ray Dalio, Tom Lee, and Nouriel Roubini now bringing their unique strategies and star power to the table. These launches reflect the growing demand for innovative, accessible investment solutions. ETFs continue to attract both institutional giants and retail investors,. Whether by capitalizing on mega-trends, hedging against inflation, or managing risk, the ETF market is shaping up to be the most dynamic it’s ever been.
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