With the markets hitting a rough patch, the path forward for
equities seems incredibly uncertain. The Fed appears willing to do
anything and everything to boost market confidence, but conditions
on the ground are less favorable heading into the heart of Q4.
Many key companies are warning about their profits and not just
those that are focused on international segments either. Firms with
a more domestic focus are also trying to temper investor
expectations, suggesting that we could be in for a bumpy earnings
season and a broad slowdown in the market.
With this kind of a backdrop some investors have taken to
investing like the professionals in order to hopefully mitigate
risk and find the best picks in the market. After all, those who
are managing millions or those who can shift perception based on
their purchases and sales can have an advantage over the 'regular'
Three Biggest Mistakes of ETF Investing
Fortunately, large investment firms and hedge funds are forced
to disclose their holdings and their portfolio moves on a quarterly
basis. This system helps to give the average investor an easy way
to match the investing styles from some of their favorite investing
The main drawback to this approach is that the holdings updates
can often be somewhat stale, as managers can move in and out of a
security before an update is required by the SEC. Furthermore, some
gurus may be taking positions-be it in swaps, futures, or more
exotic securities-that are difficult if not downright impossible
for investors to match (read
The Truth About Low Volume ETFs
If that wasn't enough, tracking one 'master' of the investing
world may not really be enough diversification for some, as the
picks could be heavily concentrated in a particular style or market
segment. Given these realities, an ETF approach to tracking top
investment managers could be an interesting way to go instead.
With this approach, the guesswork and selection of managers is
done for you, allowing a solid and well diversified portfolio to be
built that still focuses in on market guru predictions.
Additionally, while fees are somewhat higher in this space than in
the less involved segments of the ETF world, the cost is likely to
be but a fraction of what investors currently pay for 'true' hedge
fund exposure, meaning that these investments could be a low cost
way to play the space.
Thanks to this, we have highlighted three ETFs below which look
to track market mavens and their investment picks. While all three
have a somewhat similar approach to the problem, there are some key
differences which investors should be aware of before making a
choice in this interesting, and potentially lucrative, segment of
the ETF market:
Global X Top Guru Holdings Index ETF (
One way to target market experts is with Global X's aptly named
'GURU' which follows the Top Guru Holdings Index. This benchmark is
comprised of the top U.S. listed equity positions reported on
Form13F by a select group of institutions, as determined by
Structured Solutions AG.
Hedge funds are selected for inclusion from a pool of 1,000s and
are picked based on the size of their reported equity holdings and
the efficacy of replicating their publicly disclosed positions.
Additional filters are applied to eliminate hedge funds that have
high turnover rates for equity holdings, and then the stocks are
screened for liquidity and equal weighted.
With this approach, GURU has roughly 50 stocks in its basket and
is weighted towards tech, financials, and industrials. A nice mix
of large and small caps comprise the fund while a number of nations
are represented as well, giving GURU a global focus (read
Five Great Global ETFs for Complete Equity
It should also be noted that volume is rather light for this
product while expenses come in at 0.75%. This suggests that the
cost is somewhat higher than the stated expense ratio, but as you
will read, this expense ratio is far less than some of the more
'active' products on this list.
QAM Equity Hedge ETF (
This product looks to exceed the risk adjusted performance of
roughly 50% of the long/short equity hedge fund universe, as
defined by the HFRI Equity Hedge Total Index constituents. This
approach includes looking at the Markov Processes International
proprietary style analysis technique, patented hedge fund analysis
software, as well as the manager's knowledge of the space to
determine which segments best represents the hedge fund
The process will use ETFs for its exposure, giving it even more
diversification. With this approach, the managers hope to also beat
out the S&P 500 Index while still having lower risk levels than
this key benchmark (see
Three Low Beta ETFs for the Uncertain Market
The fund is still quite new so holdings could be in flux, but it
does have an interesting mix of bond and equity ETFs in its
portfolio. At the top of the list is two bond ETFs,
, while two equal weight funds round out the rest of the top four
accounting for another 10% of the total assets.
As we alluded to earlier, the fund is quite new so AUM is pretty
low while volume is quite spotty suggesting wide bid ask spreads.
Meanwhile expenses, thanks to acquired fund fees and 'other' come
in at 1.64%, putting it near the top from a cost perspective.
AlphaClone Alternative Alpha ETF (
Another new fund on this list is ALFA, from the relative unknown
issuer AlphaClone. Their only fund tracks the AlphaClone Hedge Fund
Long/Short Index which looks to provide exposure to US Traded
equities which hedge funds and institutional investors have
disclosed significant exposure.
Securities are chosen for inclusion based on managers 'Clone
Score', a proprietary ranking system from the advisor which looks
to rate managers and thus allocate the most resources to the best
ones. It should also be noted that the fund has the ability to
employ a dynamic hedge so that the benchmark can either be 100%
long or as much as 50% long and 50% short, depending on market
The fund is right around the others in terms of fees at 95 basis
points a year while volume is quite low for this ETF as well.
Correlation and standard deviation levels aren't too meaningful at
this point since the fund hasn't been out for that long, but the
fund has seen higher correlation levels than the others on the
list, though its performance has been very good since its inception
The Five Best ETFs over the Past Five Years
makes up the top holding in the ETF at just over 11% of assets
while the rest of the top ten is rather spread out around the 2%
level each. With this approach, the fund is heavily concentrated in
technology, although consumer discretionary (21%) also makes up a
big chunk, while health care and financials round out the top four
with 10% each.
Want the latest recommendations from Zacks Investment Research?
Today, you can download
7 Best Stocks for the Next 30 Days
Click to get this free report >>
ALPHACLN-ALT AL (ALFA): ETF Research Reports
GLBL-X TOP GURU (GURU): ETF Research Reports
ADVSR-QAM EQTY (QEH): ETF Research Reports
To read this article on Zacks.com click here.
Want the latest recommendations from Zacks
Investment Research? Today, you can download 7 Best Stocks for the
Next 30 Days. Click to get this free report