How Is Granny Shots ETF GRNY Beating The S&P 500 So Badly?

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The S&P 500 Index has been such a strong and reliable arbiter of US stock market health that Warren Buffett and Charlie Munger have both routinely touted it in interviews, and Buffett famously won a $10 million decade-long returns competition wager (proceeds to charity) with a hedge fund manager on it. Such is its popularity that the $1.3 trillion net asset Vanguard S&P 500 ETF (NYSEARCA: VOO) is now the largest ETF in the world. With 9.8% year-to-date returns at the time of this writing, the S&P 500 is on track for another year of double digit returns by the end of December. 

However, a new, first time ETF from a financial firm best known for its founder’s unconventional market views on Wall Street is, so far, leaving the S&P 500 in the dust. Launched in November 2024, the Fundstrat Granny Shots US Large Cap ETF (NYSEARCA: GRNY) was analogously named for its unconventional, yet effective approach to portfolio management. It’s the brainchild of Fundstrat founder Tom Lee, who has a 25+ year history of marching to his own drummer, no matter what his Wall Street peers might say. 

From Sideman To Rock Star

Leaving JP Morgan in 2014 to start Fundstrat Capital, Lee’s public profile escalated as he made himself available to many news and streaming outlets. Their eagerness to feature Lee’s take on the markets rocketed after he became the first Wall Street analyst to publicly go on record in analyzing Bitcoin (BTC) in 2017. At the time, Bitcoin had hit $2,450. Lee projected a 5-year price target of $55,000. 

Lee’s comfort discussing both equities and cryptocurrencies with equal aplomb has built a following through his frequent appearances on CNBC and online. His decision last year to go from the analyst side of the industry to the ETF issuer side excited his fan base in much the same way as the anticipation for Jimi Hendrix’s new band with drummer Buddy Miles, Band of Gypsys, after the breakup of The Jimi Hendrix Experience. 

Granny Shots’ Secret Sauce

The Granny Shot is an underhanded basketball free throw technique most associated with children and elderly players who lack the strength to execute the standard overhand free throw. Its lack of aesthetics has rendered it a topic of derision, despite the Granny Shot’s statistically superior accuracy and consistency. In like fashion, Lee has dubbed his ETF “Granny Shots” because of its unconventional approach to stock selection, yet remarkably effective, results based ROI outcomes. 

Unlike most passively managed, index tracking ETFs, GRNY is actively managed, and rethinks the ETF approach in several ways:

• Comparable to the underhanded Granny Shot free throw, GRNY stock selection qualification requires the stock to fall under a number of off-the-wall and unconventional  investment themes that Fundstrat has identified as growth drivers.
• There are three short term (6-12 month) themes: Style Tilt, Seasonality, and PMI Recovery.
• The four long term (3-5 year) themes are: Energy/Cybersecurity, Millennials Impact, Global Labor Suppliers (an AI parameter), and Easing Financial Conditions.
• The multiple themes concept is designed to choose sufficiently diverse growth stocks that will supply a portfolio with resilience against a range of potentially adverse news events.
• Qualifying stocks must align with at least two (2) themes identified in the investment themes to warrant portfolio inclusion. 
• Qualifying in more than two themes does not necessarily lead to greater portfolio weighting for any particular stock, as additional criteria are used for that determination.  
• The portfolio is limited to roughly 35 to 40 S&P 500 stocks that meet the Fundstrat multiple investment theme parameters. It is rebalanced every quarter.

The S&P 500 Magnificent 7 Double-Edged Sword

The maxim, “Live by the sword, die by the sword” has, for better or worse, come to emblemize the Magnificent 7’s role in the direction of the S&P 500 Index. The Magnificent 7 consists of:

• Alphabet (Google)
• Amazon
• Apple
• Meta Platforms (Facebook)
• Microsoft
• Nvidia
• Tesla

They are the top seven largest market cap stocks in the S&P 500, and account for 36% of the index’s total market capitalization. As most investors are aware, all of the Magnificent 7 stocks are tech stocks and all have some involvement with AI in varying capacities. The extremely bullish sentiment in AI in recent years has fueled the intense investor interest in riding the wave through the Magnificent 7 stocks. 

With 7 stocks all in the same sector representing one third of the entire index, the S&P 500 has two (2) glaring vulnerabilities:

1. The index at present will rise and fall on the market’s appetite for AI and tech. While AI popularity is still overwhelmingly strong, recent disturbing reports of AI have emerged:

• AI programs purposely ignoring shut-off and power-down orders; 
• Some AI programs surreptitiously moving data to other storage locations when ordered to delete it; 
• An AI robot that reportedly attacked human factory workers;
• A lawsuit filed against ChatGPT, claiming it unduly influenced a teenager’s decision to commit suicide.

2. The S&P 500 has another 490 stocks. Should their performances become lackluster or negative, their relatively smaller market caps may give a false impression of the overall market’s strength. For example, the index’s skewing towards AI can conceal weaknesses in key and essential non-tech industries, such as agriculture, mining, and luxury goods. 

On the other hand, the multiple theme drivers rationale for a selected stock for GRNY is to ensure favorable odds of continued support, in case the trend or narrative drops in popularity or receives a streak of negative news. For example, if a stock appeals to both Millennials and the AI followers, the chances of interest from both sectors waning is considerably smaller than if only one or the other.

As such, the GRNY portfolio’s top 10 largest holdings display an unusual mix of stocks that unsurprisingly only features Alphabet (Google) and Tesla from the Magnificent 7. The firepower it gets from its other stocks – including travel (Expedia), aerospace (GE Aerospace), and venue entertainment (Live Nation) – to generate 18.75% yield to date is a testament to Lee’s out- of-the-box analytical process. The Granny Shot effect of unconventional stock picks delivering the goods is demonstrated to full effect with every upward tick of the ROI.

While including criteria as social media effect, age bracket demographics, and AI impact in a comprehensive stock analysis methodology might sound somewhat exotic – and, to some economics trained scholars, amusing – there is no denying that Fundstrat is earning its popularity. A record of over $2 billion in inflows in a scant nine months is testament to that fact. It’s still too early to tell, but Tom Lee may just have pioneered yet another Wall Street benchmark if GRNY can sustain its performance level for the future. 

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