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So far, 2017 has been the banner year for the stock market with the S&P 500 and the Nasdaq scaling multiple highs. Hedge funds have driven the market rally with their bullish bets soaring to levels not seen before the financial crisis in the first quarter, according to the Goldman Sachs Hedge Fund Trend Monitor.
Hedge funds are investing heavily in technology stocks followed by consumer discretionary. The so-called FAANG stocks (Facebook, Amazon, Apple, Netflix and Google parent Alphabet), which are among the top 10 holdings of most hedge funds portfolio, saw gross and net exposure jump to post-crisis highs of 230% and 73%, respectively. These stocks have contributed largely to the 4.7% returns year to date for the average equity hedge fund (read: 5 ETFs & Stocks to Ride the Tech Mania).
As a result, stock market gurus like Warren Buffett, Bill Ackman, Daniel Loeb, Cark Icahn or David Einhorn have proven their supremacy by making huge money in this bullish market. Naturally, investors would also want to invest like the gurus to fetch higher returns than the market.
While matching investing styles of stock market gurus is a daunting task, the advent of guru style ETFs have made it simpler. These are great ways to play the market like a pro.
Inside Guru ETFs
These funds replicate the investing styles and predictions of market gurus, providing a solid and well-diversified portfolio, which seeks to outperform the broader market. This is because the funds avoid some pitfalls of tracking one ‘master’ of the investing world, heavily concentrated on a particular style or market segment.
Further, some gurus might take positions in swaps, futures or more exotic securities that general investors may not be able to grasp. For them we suggest the basket approach. Though the products charge a somewhat higher fee than the other ETFs with less exposure to this world, the cost is just a fraction of what investors pay for a ‘true’ hedge fund exposure (read: 5 Top-Ranked Growth ETFs & Stocks to Buy Now).
However, the strategy has one big drawback. Since the large investment firms or hedge funds which manage ETFs need to disclose their holdings and portfolio moves on a quarterly basis, the holdings’ update could often be stale as managers can move in and out of a security before the regular update.
Below we have highlighted some of the most popular ETFs, which look to track market experts, and their investment picks. All these differ in one way or the other and could make for an exciting choice in this lucrative corner of the ETF market. These ETFs either try to clone stock investments of gurus or imitate their investing styles:
This fund seeks to generate alpha over the broad market by investing in highest conviction ideas from a select pool of hedge funds. This approach results in a well-diversified basket of 60 securities with none holding more than 2% of assets. Incyte, Autodesk and Crown Castle are the top holdings at present. Consumer discretionary and technology takes the largest share in terms of sector look with 23% and 22%, respectively, while consumer staples, healthcare and industrial round off the top five with double-digit exposure each.
The ETF has amassed $56.2 million in its asset base while volume is light at 9,000 shares in hand. It charges 75 bps in annual fees and has gained nearly 11.6% so far this year (read: Invest Like Warren Buffett with These ETF Strategies).
AlphaClone Alternative Alpha ETF
This fund tracks the AlphaClone Hedge Fund Long/Short Index. The benchmark uses a proprietary ranking system, ‘Clone Score’, which ranks hedge funds and institutional investors based on the efficacy of replicating their publicity disclosed positions. It also has a hedge mechanism built in, which is triggered on or off when the S&P 500 index crosses its 200-day moving average at any month end. If the market goes down, the index goes from long-only to market hedged (50% short exposure to S&P 500).
Holding 115 securities in its basket, the fund is pretty spread out across components with none accounting for more than 5.65% share. Amazon, Charter Communications and Berkshire Hathaway are the top three holdings while technology dominates the fund’s portfolio from a sector perspective with 30% share followed by consumer discretionary (17%). The ETF has garnered $31.4 million in its asset base while trades in volumes of 6,000 shares per day. Expense ratio comes in at 0.95%. ALFA has returned about 11.8% so far this year.
This fund tracks the GS Hedge Fund VIP index, which consists of fundamentally driven hedge fund managers’ “Very-Important-Positions,” which appear most frequently among their top 10 long equity holdings. It holds 50 stocks in its basket with none accounting for more than 2.1% of assets. Comcast, T-Mobile and Dell Technologies occupy the top three positions in the basket. Here also, information technology and consumer discretionary are the top two sectors with a 32.2% and 25.9% allocation each.
Since its inception in November 2016, GVIP has accumulated $26 million in its asset base while trades in average daily volume of 11,000 shares. It charges 45 bps in fees per year and has gained 12.8% in the year-to-date timeframe.
Direxion iBillionaire Index ETF
This fund provides an opportunity to invest like billionaires by tracking the iBillionaire Index. The benchmark first selects 10 billionaires based on several criteria including net worth, source of wealth, portfolio concentration, turnover and performance over time though 13F filing. Then, it selects stocks based on the highest allocations in the billionaire’s portfolio. This gives an equal-weighted portfolio of 31 large-cap stocks, with Apple, Allergan and American International being the top three holdings (read: A Feast of ETFs with Apple on Plate).
Information technology and consumer discretionary take the top two spots with 46% and 23% share, respectively. The fund has AUM of $14.2 million and charges 65 bps in fees from investors. Volume is paltry, exchanging 3,000 shares in hand per day. The ETF is up 14% so far this year.
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Beat the Market with These Guru ETFs
So far, 2017 has been the banner year for the stock market with the S&P 500 and the Nasdaq scaling multiple highs. Hedge funds have driven the market rally with their bullish bets soaring to levels not seen before the financial crisis in the first quarter, according to the Goldman Sachs Hedge Fund Trend Monitor.
Hedge funds are investing heavily in technology stocks followed by consumer discretionary. The so-called FAANG stocks (Facebook, Amazon, Apple, Netflix and Google parent Alphabet), which are among the top 10 holdings of most hedge funds portfolio, saw gross and net exposure jump to post-crisis highs of 230% and 73%, respectively. These stocks have contributed largely to the 4.7% returns year to date for the average equity hedge fund (read: 5 ETFs & Stocks to Ride the Tech Mania).
As a result, stock market gurus like Warren Buffett, Bill Ackman, Daniel Loeb, Cark Icahn or David Einhorn have proven their supremacy by making huge money in this bullish market. Naturally, investors would also want to invest like the gurus to fetch higher returns than the market.
While matching investing styles of stock market gurus is a daunting task, the advent of guru style ETFs have made it simpler. These are great ways to play the market like a pro.
Inside Guru ETFs
These funds replicate the investing styles and predictions of market gurus, providing a solid and well-diversified portfolio, which seeks to outperform the broader market. This is because the funds avoid some pitfalls of tracking one ‘master’ of the investing world, heavily concentrated on a particular style or market segment.
Further, some gurus might take positions in swaps, futures or more exotic securities that general investors may not be able to grasp. For them we suggest the basket approach. Though the products charge a somewhat higher fee than the other ETFs with less exposure to this world, the cost is just a fraction of what investors pay for a ‘true’ hedge fund exposure (read: 5 Top-Ranked Growth ETFs & Stocks to Buy Now).
However, the strategy has one big drawback. Since the large investment firms or hedge funds which manage ETFs need to disclose their holdings and portfolio moves on a quarterly basis, the holdings’ update could often be stale as managers can move in and out of a security before the regular update.
Below we have highlighted some of the most popular ETFs, which look to track market experts, and their investment picks. All these differ in one way or the other and could make for an exciting choice in this lucrative corner of the ETF market. These ETFs either try to clone stock investments of gurus or imitate their investing styles:
Global X Guru Index ETF (GURU - Free Report)
This fund seeks to generate alpha over the broad market by investing in highest conviction ideas from a select pool of hedge funds. This approach results in a well-diversified basket of 60 securities with none holding more than 2% of assets. Incyte, Autodesk and Crown Castle are the top holdings at present. Consumer discretionary and technology takes the largest share in terms of sector look with 23% and 22%, respectively, while consumer staples, healthcare and industrial round off the top five with double-digit exposure each.
The ETF has amassed $56.2 million in its asset base while volume is light at 9,000 shares in hand. It charges 75 bps in annual fees and has gained nearly 11.6% so far this year (read: Invest Like Warren Buffett with These ETF Strategies).
AlphaClone Alternative Alpha ETF
This fund tracks the AlphaClone Hedge Fund Long/Short Index. The benchmark uses a proprietary ranking system, ‘Clone Score’, which ranks hedge funds and institutional investors based on the efficacy of replicating their publicity disclosed positions. It also has a hedge mechanism built in, which is triggered on or off when the S&P 500 index crosses its 200-day moving average at any month end. If the market goes down, the index goes from long-only to market hedged (50% short exposure to S&P 500).
Holding 115 securities in its basket, the fund is pretty spread out across components with none accounting for more than 5.65% share. Amazon, Charter Communications and Berkshire Hathaway are the top three holdings while technology dominates the fund’s portfolio from a sector perspective with 30% share followed by consumer discretionary (17%). The ETF has garnered $31.4 million in its asset base while trades in volumes of 6,000 shares per day. Expense ratio comes in at 0.95%. ALFA has returned about 11.8% so far this year.
Goldman Sachs Hedge Industry VIP ETF (GVIP - Free Report)
This fund tracks the GS Hedge Fund VIP index, which consists of fundamentally driven hedge fund managers’ “Very-Important-Positions,” which appear most frequently among their top 10 long equity holdings. It holds 50 stocks in its basket with none accounting for more than 2.1% of assets. Comcast, T-Mobile and Dell Technologies occupy the top three positions in the basket. Here also, information technology and consumer discretionary are the top two sectors with a 32.2% and 25.9% allocation each.
Since its inception in November 2016, GVIP has accumulated $26 million in its asset base while trades in average daily volume of 11,000 shares. It charges 45 bps in fees per year and has gained 12.8% in the year-to-date timeframe.
Direxion iBillionaire Index ETF
This fund provides an opportunity to invest like billionaires by tracking the iBillionaire Index. The benchmark first selects 10 billionaires based on several criteria including net worth, source of wealth, portfolio concentration, turnover and performance over time though 13F filing. Then, it selects stocks based on the highest allocations in the billionaire’s portfolio. This gives an equal-weighted portfolio of 31 large-cap stocks, with Apple, Allergan and American International being the top three holdings (read: A Feast of ETFs with Apple on Plate).
Information technology and consumer discretionary take the top two spots with 46% and 23% share, respectively. The fund has AUM of $14.2 million and charges 65 bps in fees from investors. Volume is paltry, exchanging 3,000 shares in hand per day. The ETF is up 14% so far this year.
Want key ETF info delivered straight to your inbox?
Zacks’ free Fund Newsletter will brief you on top news and analysis, as well as top-performing ETFs, each week. Get it free >>