Hedge Fund investing ETF style
ETFs cover a wide range of investing ideas from mimicking an index to tracking technology trends. Now, there are two ETFs that try and mimic top hedge fund managers by looking at positions in quarterly 13F filings.
The first of these ETFs to be launched was the AlphaClone Alternative Alpha ETF which is up 4.5% YTD, but has only been out slightly over a month. AlphaClone takes an equal weighting of the positions listed in a 13F, but if a position has more than one manager it receives a second count in the portfolio. A nice feature of the AlphaClone ETF is that it will go short under certain circumstances, such as the S&P 500 crosses below its 200 day moving average.
Global X launched its own hedge fund like ETF, the Guru Holdings Index and it is up 4.1% YTD. This ETF has roughly 50 securities in its portfolio including both domestic and international.
The new ETFs might seem like a good idea, but worry that the lag between the 13F filings and when the ETF can take the position is out there. A position that a hedge fund lists on a 13F can easily be liquidated by the time the ETF has the information. Also, some of the hedge funds that the Guru ETF tries to mimic aren’t even pure long/short funds.
WSO, what are your thoughts on these new types of ETFs?
http://www.indexuniverse.com/sections/news/12058-a...
http://www.indexuniverse.com/sections/news/12108-g...
http://seekingalpha.com/article/638571-global-x-de...
http://seekingalpha.com/article/674311-why-you-sho...






Comments
Considering they're all
Considering they're all underperforming the S&P, they appear to just be another gimmick.
This seems like a terrible
This seems like a terrible idea...
I'm no investing expert, but
I'm no investing expert, but I would be weary of anything that merely copies other strategies.
I'm not sure about the other
I'm not sure about the other ETFs you mentioned but i know for a fact that the GURU ETF does not accurately replicate HF performance at all. First of all, the 13F filings which the ETFs are ‘tracking’ will not clone hedge fund performance. The filings have to be made, legally, within 45 days of the end of a quarter. Most funds wait out that entire period and file their reports on the last possible day.
That leaves the new ETF at least 45 days behind the market. Much can change in a 45 day period, and the ETF will be vulnerable to those changes. This leaves the ETF far behind both the long thought out and split second decisions made by hedge funds. It is the brain power behind these funds that lead to their success.
Hedge funds also tend to hold more than just equities in their portfolios. They hold bonds and commodities and many other types of investment. Most movements unaccounted for by the index, leading to even greater inaccuracies along with the market lag. Seth Klarman’s Baupost Group is an excellent example. It has $24 billion under management but only about $3 billion in equities.
The issue is that these funds that purport to follow the moves made by the biggest and most successful hedge funds do nothing of the sort.
Retail investors looking to mimic hedge funds may be attracted to these ETFs. Like everything else in finance, there are no promises. The design is poor, and with the Guru X following 68 funds, the cumulative disconnect between the ETF and the index it is supposed to follow is a chasm.
"Well, you know, I was a human being before I became a businessman." -- George Soros
bottera: WSO, what are your
WSO, what are your thoughts on these new types of ETFs?
I think they are about as useful as a closet full of ass-hats.
I'm a lover, not a fighter, but I'm also a fighter, so don't get any ideas.
My WSO Blog