Long-time market bull Tom Lee is considering two new themes for his Fundstrat Granny Shots US Large Cap ETF.
On CNBC’s “ETF Edge” this week, he revealed sovereign security could soon make the cut.
“It’s now evident to me that the mechanisms are in motion for companies to really fix their supply chains within a sovereign border, and that’s a change,” the firm’s chief investment officer said. “That’s not going to just be one or two years.”
He’s also looking at Gen Z. Lee compares the generation to millennials, who he called “the engine” of the market when Fundstrat first began researching themes seven years ago.
“That means we need to be focusing on Gen Z and then Gen Alpha, so we might have to evolve our demographic theme to kind of orient towards the younger cohorts,” he said. “It may not be for a couple years, but I’m kind of sharing our thought process.”
Lee’s Granny Shots ETF was inspired by NBA legend Rick Barry’s awkward free throw style.
‘If you buy the best stocks in each theme, then you’re hanging your hat on a single idea. So we said, ‘Let’s be like Rick Barry. Let’s do a correct physics basketball throw, underhanded,'” said Lee. “It doesn’t look great, but it makes 90% of the shots.”
According to Lee, the ETF’s strategy starts with seven themes Fundstrat predicts will define the market over the next 10 years — from millennials to energy security. To be considered a granny shot, a stock must fit at least two of the themes.
“We’re not buying junky stocks. We want to make sure that they generate earnings and high ROIC [return on invested capital],” Lee said. “We rebalance every quarter.”
So far, the Granny Shots ETF, which was launched on Nov. 7, is scoring investors. In May, Fundstrat reported the ETF crossed the $1 billion in assets under management milestone. As of last week, Lee said the fund grew to $1.3 billion.
Since its launch, the ETF is up 13% as of Thursday’s close. The fund is beating the S&P 500 so far this year. It’s up almost 15% since Jan. 1 while the index is up about 7%.
As of July 3, Fundstrat reports its top three holdings are Robinhood, Oracle and AMD.
Independent ETF expert Dave Nadig said he’s observed recently that ETFs with active management styles are gaining traction.
“Tom’s very much a part of it,” Nadig said in the same interview. “I think having an active management overlay, both on the stock selection and the thematic part, can make a lot of sense for investors. It’s certainly easier for investors to understand.”