Allan Roth: Lessons From 2 Jim Cramer ETFs

Last March, two ETFs were launched to track CNBC’s Jim Cramer’s picks: the Tuttle Long Cramer Tracker ETF (LJIM), which consists of stocks recommended by Cramer, and the Inverse Cramer ETF (SJIM), which shorts the positions Cramer recommends. After only a few months, Tuttle Capital Management has already announced the closing of the long Cramer Tracker ETF (LJIM).  

I spoke to Matthew Tuttle, CEO of Tuttle Capital Management. He said he is committed to keeping the Inverse Cramer ETF open and told me, “This is my baby, and I have about $319,000 of my family’s money in this ETF.” He also stated that, “It allows me to sleep better at night.” Indeed, Tuttle’s investment represents over 9% of the total $3.9 million in this short Cramer fund. 

Tuttle was quoted as saying he “started both funds in March to prove a point about a perceived lack of accountability that Cramer and other stock picking pundits take for poor bets.” Referring to the Long Cramer fund, Tuttle stated, “I was trying to be nice. If they’re not interested in a dialogue, I’m not going to keep it open.”  

4 Lessons From the Jim Cramer ETFs 

1. Tuttle closed the wrong fund. While the long Cramer fund attracted less than half the funds of the short, it outperformed the short Cramer fund. Since inception through Aug. 28, 2023, LJIM earned 2.1% while SJIM lost 3.5%. Both significantly underperformed the Vanguard Total Stock Market ETF (VTI), which earned 10.7% during the same period. I asked Tuttle why he closed the better-performing of the two funds and he responded, “Cramer was lucky."  

While I love the idea of betting against Cramer, assuming the stock market gains over a long period of time, even underperforming stock picks will cause a short fund to decline, assuming the picks have some overall gains, even if it’s a fraction of the market’s gain. I posed this to Tuttle and he responded that, now that the long fund is closing, he is able to have the short Cramer fund go long on the stocks Cramer recommends selling. Indeed, this is similar to my imaginary Market Neutral Mad Money ETF. Tuttle told me the SJIM fund is now only about 80% short and 20% long, though it was possible Cramer could sour on the stock market and the fund could actually have a net long position.  

2. Tuttle proved nothing. It takes decades to be able to prove skill in stock selection. Even if Cramer’s picks had a 100% return during the six months, no statistical conclusion could be made. On the other hand, it takes far less time to prove lack of skill if performance is horrible. I once wrote about how Cramer’s two stocks to exit immediately were two of the four best-performing stocks of 749 companies in the Wilshire Large Cap Index, a one in 35,000 probability event. More importantly, other studies show long-term underperformance, which does statistically prove under performance. 

3. Underperformance of both funds was statistically probable. Both the long and short funds had fewer than 30 holdings. A handful of companies typically drive the vast majority of the returns of the stock market, according to a study by Hendrik Bessembinder at Arizona State University. The rest earn about the same as a Treasury bill. So the strong likelihood of a few dozen long positions besting the overall market of thousands of securities is low. And a short fund is virtually guaranteed to underperform the market in the long run, assuming stocks gain. Cramer’s picks would have to be extremely and consistently horrible for a short equity fund to gain in an up market. I don’t have confidence Jim Cramer’s picks would be that bad. 

4. No strategy is so brilliant as to justify a 1.20% annual expense ratio. The ETFs I recommend typically have annual expense ratios between 0.03% and 0.07%. While I find the strategies on both the long and short Cramer funds flawed, I’ve never seen any investment strategy so brilliant as to justify these high fees. Tuttle did tell me that the actual fund fees were about 0.95% annually, as his SEC filings had this ETF owning other funds that had expense ratios that needed to be included in the filing. Tuttle said he thought Cramer would come out for or against certain sectors, but that never happened, so he didn’t need to buy other funds. 

Conclusion 

I’ve often said one of my professional goals is never to be confused with Jim Cramer. Buying his picks is foolish and I’ve even written how Cramer made me 22% in 22 days by buying the two stocks he said to sell immediately. But this was my own fun money where I would bear the loss. I didn’t think the anti-Cramer ETF would be a home run when it was launched and still don’t. In this case, I think the opposite of a bad strategy (long Cramer) is a worse strategy (short Cramer). 

Recently, I was watching the local news and the weatherman apologized for predicting heavy rain that day when only a few drops fell. He said, “I apologize to those of you who canceled your plans based on my forecast yesterday.” Wouldn’t it be nice if Cramer (or any stock forecaster) apologized for market underperformance? 

I have one screener when it comes to buying ETFs. It must meet the following criteria: 

Minimize expenses and emotions; maximize diversification and discipline.  

Both Cramer funds failed to make it past this screen.