Will Rhind, GraniteShares
High-Conviction Stock Picks in an ETF
In a recent episode of “Behind the Ticker,” Will Rhind, founder and CEO of GraniteShares, discussed the innovative approach behind the GraniteShares NASDAQ Select Disruptors ETF, ticker DRUP. GraniteShares, an ETF issuer with around $8 billion in assets under management, offers a diverse range of ETFs including physical gold, income strategies, broad equity strategies, and leveraged and inverse ETFs on single stocks like Tesla and Nvidia. DRUP focuses on capturing the top 50 most disruptive equities in the U.S. market, identified through a unique methodology developed in partnership with NASDAQ.
Rhind explains that the concept of “disruption” is integral to DRUP’s strategy. Disruption is measured through various factors including the value of a company’s patent portfolio, the amount of money spent on R&D, and gross margins. Companies from the NASDAQ are scored and ranked based on these factors, with the top 50 making it into the portfolio. This approach ensures that the ETF includes companies at different stages of disruption, from infancy to maturity, thereby capturing a broad spectrum of innovative firms.
One of the standout features of DRUP is its focus on quality alongside disruption. By incorporating factors like gross margins and margin growth, the ETF aims to include not just disruptive companies, but also those with a sustainable competitive advantage or “moat.” This ensures that the portfolio includes companies that are not only innovative but also financially robust. An example Rhind mentions is the inclusion of companies with high-value patent portfolios, which typically indicate a strong competitive edge in their respective fields.
Rhind also highlights the fund’s quarterly rebalancing and its adjusted free float market cap weighting, which prevents any single company from dominating the portfolio. Interestingly, despite the absence of several “MAG7” stocks like Nvidia, Tesla, Apple, and Amazon, DRUP has achieved impressive performance. This underscores the effectiveness of its unique methodology, which selects companies based on their disruption potential rather than their current market popularity.
In terms of positioning within a diversified portfolio, Rhind suggests that DRUP can replace technology or innovation sleeves that advisors might already hold, such as QQQ. It can also serve as a replacement for other thematic or innovation-based strategies, offering a fresh and robust approach to innovation investing. GraniteShares markets DRUP as a unique, methodology-driven ETF that offers a better way to invest in innovation, emphasizing its differentiated approach and strong performance.
For more information about GraniteShares and the DRUP ETF, investors can visit GraniteShares.com, where they can find detailed information about the funds, contact options, and additional resources. GraniteShares is also active on social media platforms like LinkedIn and Twitter, providing regular updates and insights into their range of investment products.
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Full Transcript
3,887 wordsMachine transcribed from Brad Roth's conversation with Will Rhind, GraniteShares, with speakers identified automatically. Timestamps link to that moment on YouTube. Lightly cleaned, otherwise unedited.
Welcome to Behind the Ticker. I'm Brad Roth, Chief Investment Officer of Thor Financial Technologies and Portfolio Manager of THLV, the Thor Low Volatility ETF. Behind the Ticker uncovers the inner workings of the ETF industry. We will interview portfolio managers and ETF service providers to dive deep into their work lives and their businesses. We will learn the inner workings of their strategies and what drives them as they continue to grow their company. Many of these individuals are entrepreneurs and will have unique and compelling insights to share as much goes on behind the ticker. Please note, nothing in this show is investment advice and it is meant solely for educational and entertainment purposes only.
Welcome to Behind the Ticker. Today we have on Will Rind. He is from Granite Shares and we are talking about Drup. I had him on earlier in the year. We talked about their leveraged ETF and inverse ETF series of single stock. And today we're talking about their Nasdaq Select Disruptors ETF. It's a really unique strategy. It's in that innovation thematic space, but also has a bit of a value tilt, companies that have sort of a moat around it. So if you're looking for an alternative to innovation type strategies, I think this is definitely one to look at. So please enjoy this conversation with Mr. Will Rind. Hey, Will, welcome back to the show.
Thanks, Brad. Good to see you. Good to be back on the show. Yeah. So why don't we just do like a quick refresher? I know we've had you on, you've done your extensive, who you are and we talked about Granite Shares. But for one of maybe the new listeners to the show, why don't you give everybody just a refresher of who you are and a little bit about Granite
Shares? Yeah, sure. I'm happy to. I'm Will Rind, founder and CEO of Granite Shares. We're an ETF issuer. That means that we issue ETFs or manufacture ETFs and market them. We create lots of different ETFs, everything from physical goals to income strategies to broad equity strategies to what's becoming very, very popular at the moment is leveraged and inverse ETFs on single stocks like Tesla, NVIDIA, etc. So the company is about 8 billion in terms of assets under management, growing very rapidly. And we have a big presence not just here in the United States, but in European markets as well.
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So we're here today specifically to talk about your Granite Shares Nasdaq Select Disruptors ETF. I'm going to call it Drup, I don't know, ticker D-R-U-P. At a very high level, can you explain to us kind of what that fund is trying to accomplish?
Yeah. So at a very high level, this is the top 50 most disruptive equities in the US market as
Selected by Nasdaq. So how would you kind of define that word disruptor? Like what does that mean to you when you're putting some of these names in the portfolio?
Yeah. So Drup, as I call it, but Drup is the strategy here. And it's an index-based strategy. That means that the index and the methodology behind it was created in partnership with the Nasdaq. So we aim to replicate that index. And then the methodology that's used in terms of how companies get selected, it is a combination of factors. So those factors are things like the patent value of a particular company's patent portfolio, stuff like amount of money that has been put into R&D, gross margins, other sort of factors that ultimately make up a score.
Every company from the Nasdaq, so the top 500 companies in the Nasdaq are ranked, scored, and then ranked. So we take the top 50 names with the highest scores, and that becomes the portfolio. So really think about it in terms of disruption is not a factor. So it's not like value or growth or momentum where you can say, hey, here are the most disruptive companies. It means different things to different people. So the idea behind this is to try and put a framework around disruption and say, okay, what would a disruptive company look like if we were to actually measure it? And then that ultimately is what the portfolio becomes.
So I saw in some of the literature, you mentioned you're looking at disruptors in different stages. So infancy, expansion, maturity. So as part of that 50, do you require some of these companies be maybe in that infancy stage or in that maturity stage? Or is it purely based on that rank and
You're getting the top 50? That's right. It's purely based on the rank, but the aim is to capture it through that sort of S-curve cycle. And so they're all large cap companies, but companies would be in different stages of that disruptive cycle. And by using this particular framework, it enables us to then sort of select. So when you think about innovation investing, for example, and again, we have the benefit in many ways of creating this after 2022 or after the Fed repriced interest rates. If you think about other innovation, well-known innovation strategies, they could be thematic-based ETFs or they could be self-styled innovation ETFs.
The problem that a lot of those, if not all of them had, was they were pursuing ultimately a growth at all costs strategy. And so that was fine in a market where we had zero interest rates and the market was washed with liquidity. But when the Fed repriced all stocks, what happened is those strategies performed incredibly poorly because they were biased or overweight a lot of the companies which were like the most affected by the repricing environment. So which companies, the companies that I should say that did the best in a zero interest rate environment pretty much did the worst in a 5% interest rate environment. And so looking at that, we said, okay, well, how can we do innovation investing better? How can we improve on these thematic ETFs, improve on these innovation
ETFs and think about disruption more from this lens of, what does it mean to be disruptive? And as you'll see, like some of the factors that we use, namely things like gross margins, margin sharp, margin growth, that's introducing a sort of a quality factor almost into the design, which means that we're getting companies that are not just large cap companies, not just innovative companies, not just disruptive companies, but ones that are actually quality as well, and are not going to blow up, just because the interest rate environment suddenly changes and those companies' business
Models don't work anymore. Yeah, that's where I was going to go as you were talking. It sounds to me like you're not only trying to find companies with a disruptive competitive advantage, but also have some sort of a, I'm trying to find the right word, almost a mode around them where they have a quality to them that allows them to sustain that disruption. Is that fair?
No, that's absolutely right. And so if you take, for example, the patent value, that's a unique thing to DROP. And the reason for that is because out of the many companies that Nasdaq owns, it actually owns a company that evaluates patent portfolios and so puts a value on those companies that have large patent portfolios. So it's not just the case that we're looking for companies that have a large patent portfolio, because clearly if you have a large patent portfolio, but the patents are kind of worthless, then it doesn't really mean much. So we're looking for patent portfolios that do have significant value. And we think that's important because again, in technology or in innovation, more broadly, typically if you have patents and you have patents that are valuable,
All things being equal, it normally means that you have some kind of moat, some kind of competitive advantage in whatever field that you're in. And therefore it's difficult for the competition to compete, on a like for like basis with you, as long as they don't have access to that patent. So that's a good example of where, yes, it's a quality factor, but it's introducing a kind of a moat like quality whereby we're trying to pick companies that are disruptive, but why are they disruptive? Well, a lot of times they're disruptive or they're innovative because they've secured a patent on some particular process or some particular codes and technology that they're exploiting, to their benefit and to the detriment of others.
So when kind of looking through the portfolio holdings, it's the portfolio is not equal weight. It's actually, to me, it's fairly equal weight on the bottom tier, but it looks like kind of those top five or 10 holdings are holding the lion's share of some of that allocated capital. So can you talk about how that weighting decision or how you derive and come to that weighting decision?
Yeah. So it's adjusted free flow market cap, which basically means it's market cap weighted with some adjustments so that when you've got 50 companies and you have some very large companies in there, so for example, a Microsoft is in there, it doesn't become something crazy like 20% of the portfolio. So it is market cap weighted, but it has adjustments for the largest companies so that they don't get over or they don't represent more than a certain percentage of the portfolio.
And so how often are you going back in and kind of rebalancing this port or rebalancing the index or adhering to the index?
It's a quarterly rebalance. So like fairly regular cycle.
So one of the surprising things that I noticed, and I hope you can shed some light on this is NVIDIA is not in the portfolio, but you've still achieved great returns, like achieving good returns in this environment without having the biggest of the Mag 7 in terms of performance is quite difficult. But can you speak to maybe why that didn't quite make the cut and how you were kind of able to keep up with performance without that key driver?
Yeah. And you bring up a really good point and it's actually more than NVIDIA. So we don't have four of the Magnificent 7. So we don't have Tesla, we don't have Apple, and we don't have Amazon. So again, one of the weaknesses of a lot of these innovation slash technology thematic-based ETFs is they're really just a Mag 7 strategy. And so what makes DROP super interesting is that by applying the scoring methodology that we have, we end up with companies that people wouldn't necessarily think of. And most importantly, it's not just another Mag 7 fund. So that's kind of really interesting. And in terms of specifically the reason for not including NVIDIA, again, it goes back to the factors or going back to the weighting methodology. And for the period that those stocks
Are considered, that NVIDIA didn't make that particular cut. And it's kind of an interesting story because up until quite recently, I guess the fortunes of NVIDIA were just very different. And so up until really, you could say like the end of 2022, NVIDIA was sort of not on the radar for a lot of people. And then clearly that changed, after CHAPGPT came out in the beginning of 2023, and the company's gone from strength to strength since then. But as of time and the time period to consider, based upon the factors that we have, it hasn't or didn't score highly enough to be included in the portfolio. But again, that's the beauty of the methodology is it's completely devoid of emotion. And it's just, we select the companies that score best. And if a
Company doesn't score, doesn't mean to say that it can't be included in the future because there's a reconstitution that happens sort of a couple of times a year, but you don't get into these sort of arguments about, well, I like this stock, I like that stock. Well, you have to like the methodology and agree or trust the methodology. And, I think, again, that's one of the amazing things about D-RUP is that the performance was keeping pace, if not outperforming slightly, the Nasdaq without NVIDIA, without Apple, without Tesla, without Amazon. And that sort of stands out from the other sort of tech or innovation based ETFs.
You bring up a really good point there about creating a methodology. I find it crazy when I talk to, traders or investors that have spent all this time building a screen, building a filter, building some sort of methodology, and then don't like certain outputs and override the system, right? So at that point, what's the point of making the methodology, right?
Yeah, no, exactly. And we love NVIDIA personally. our biggest ETF, the 2X NVIDIA ETF, NVDL has been huge for us. But that's not what people are buying, per se. When you buy into a methodology around D-RUP, you're buying into that methodology, which selects that methodology, the leaves are the top 50 companies from an innovation perspective, in the market. And, those are the top 50. You've got to go, you've got to trust the process.
So you, I want to touch back on a point that you made in, in how this fund is different than some of the other thematic or innovation funds. I'm not, I'm not picking on Cathie Wood, but Cathie Wood runs a very large innovation fund. And you would never see a name in there like Johnson & Johnson that is included in your portfolio. And I don't think people would assimilate Johnson & Johnson with being quoted disruptor. So how does a name like Johnson & Johnson get in there? Is it based on that moat mentality? You'd brought up the term patent value a handful of times, like what gets a name like that included in this portfolio?
So it's a combination of the patent value that we're talking about. So again, ultimately has to score highly in all the factors that we evaluate, but it's going to be a combination of patent value and profitability. In other words, it's a quality stock with a high value portfolio of patents, which have accrued or would, give or deliver significant value. And when you think about actually the two biggest sectors that represented here, it's maybe unsurprisingly is technology and healthcare. And interestingly enough, why patents are important and why IP is important in healthcare is I think there's a new kind of golden age dawning in terms of the AI applications in healthcare. Because if you think about, these drug companies just take, one example. So companies like Johnson & Johnson that have been
For decades, trying to produce different medicines, different drugs, et cetera, testing all these different combinations, obviously medicines to treat all sorts of different ailments and conditions. That data is not public. That data is all private. So it's owned by the company. And one of the, I think one of the biggest things we'll see in terms of advancements with AI is when companies, and by the way, this is already happening. This is not like some kind of pie in the sky is going to be in the future. This is already happening. That companies like J&J are going to start to use AI to look at all the data, all the research that's been done for decades. And you can almost bet that there's going to be some
Big discoveries that are made through that data that already exists. And again, that's their data. That's not open source. Other companies, other technologies don't have access to that. And so I think that's when you're going to see the value of these particular technologies really come to light is that companies with deep amounts of research are going to have a completely different way of looking at that research. And I bet there's going to be some very interesting discoveries come out of it.
Yeah. And I think too, just staying on the topic, because I find it interesting is, as our compute power increases and we move into kind of the second age of compute, I think healthcare probably stands to be the biggest gainer and benefactor of these innovations and technology and to deliver medicines and also deliver medicines. It might be just for you, like just for Will. So yeah, I think the healthcare industry is ripe for disruption, innovation and advancement. And again, everybody thinks, when they think about disruption, they think tech, tech, tech, but I think healthcare is probably going to be the biggest benefactor. It'll be interesting to see.
And hopefully it has very positive outcomes for all of us.
And certainly, I think when it comes to the applications for AI, that a lot of the times we're talking about AI is really being like a massive productivity tool and really helping to improve productivity, which undoubtedly, that's going to be a major, major application for AI. But we're also talking about in fields like healthcare, where you have deep research and deep levels of proprietary research, I think taking a completely new set of eyes to that research and potentially being able to unlock the massive new discoveries.
So getting back to Drup, if you're sitting down with an advisor or you're sitting on a call, where are you advising kind of this gets sleeved into an already diversified model portfolio? I'm sure a lot of advisors have like a direct allocation to QQQ or something of the like. So where are you putting this?
Yeah, that's right. And depending on, I guess, how you look at it or what's in your portfolio, I think really there's probably two ways. So, most obviously it's a replacement for a technology or an innovation sleeve that you already have. So that might be in the case of a QQQ, that might be the way that you're doing it. So this is an easy way to do that. But probably more likely, it's a replacement for thematic-based or innovation strategies, which you're holding as more of a satellite position. So it's not necessarily a QQQ, but you might hold, a 10%, 15% of the portfolio in sort of thematic-based ideas.
And so this is a replacement for that, on the innovation side.
So at Granite Shares, you've had great... This has been a great product. I think it's a very interesting product. It's fairly new. So how are you kind of going and thinking about marketing this particular fund?
Yeah, we're trying to market it as... first of all, it's a unique strategy. So this is an index that was created by the Nasdaq, with us. And so this is something that is not just, offered by every, ETF company out there. And when you're building a unique idea, it's about really trying to, first and foremost, get that product market fit. And, for us, that speaks to like the technology, the innovation, the disruptive sort of landscape. And we're marketing it in the same way that we would market, our other ETFs, which is to have conversations with advisors, conversations with retail investors, whoever it may be about, why this is a, a quote unquote, better way to do innovation.
And, hopefully the performance sort of speaks for itself.
So just to, we've had a previous conversation mostly about your leveraged single stock suite. How is that going? I'm sure they're being heavily utilized by traders. So can you just touch on the single stock suite? How's everything going there? Yeah.
That's really the kind of phenomenon of this year that you've had a huge interest in levered single stock. We really sort of pioneered this category and have become the market leader in the space. So 2X NVIDIA is our flagship ETF. That's the NVDL, the most traded largest levered single stock in the world at the moment. And, obviously there's huge interest in that story. And more broadly, I think the category itself, because, at the end of the day, we're offering institutionally priced leverage. And, we're offering that in with the ease and efficiency of ETF wrapper.
And that's kind of the core proposition here. So right now is, the sort of best time, if you will, for thinking about these types of strategies when we're in earnings season. And so yesterday we had Tesla earnings. And interestingly enough, we had probably two times the amount of value traded on our 2X short Tesla, our TSDD, and our 2X long TSLR during the day yesterday. So people were clearly anticipating or, a larger section were anticipating a bearish outcome for the call after the close yesterday. And of course, those investors will be handsomely rewarded today with the price action in Tesla.
But that's kind of the beauty of these instruments is they really galvanize attention around earnings. People get really excited about what's going on and want, sort of a short term, way to implement those kind of ideas.
So I'm assuming as you move down your product lifecycle with single stock leveraged or inverse ETFs, there's going to be some crossover between the holdings inside D-RUP and some of the ETFs that you're launching on the leverage side. So hypothetical, theoretical question. Do you ever see a situation where you might launch a lever D-RUP where some of your largest holdings may be, held by your leveraged ETF holding? Yeah, no, absolutely.
There's crossover, potentially or inevitably with multiple strategies. We don't have it as much as, say, bigger firms because we just don't have as many ETFs. But if you think about, say, a larger firm, the amount of cross-pollination is ridiculous. Like, if you're on the equity side and, most equity funds are going to have, exposure to, the tech stocks or the large cap equities. So from that perspective, yeah, absolutely. But remember that each ETF is very different and serves a completely unique purpose. So it's okay to have that cross-pollination, across the strategy. It's kind of natural when you're in a market where the market is being dominated by these tech companies.
Yeah. Well, Will, I always appreciate your time. This has been very helpful. I think the strategy is extremely unique. And so before I let you go, where can people learn more about Granite Shares? Where can people get all the information they need about Drup?
Yeah. So granitefares.com is the best place to go in terms of general information about the funds, about the company. On there, you can contact us page, find out ways to get in contact with us directly. And we can send more information around Drup or any of our strategies. And of course, on social media, follow us on LinkedIn, follow us on Twitter. And it's, feel free to reach out with any questions, etc.
Well, again, Will, thanks so much for your time. Thanks, Brad. Always good to see you.
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