No Need to Mimic All Hedge Fund ETF Holdings

ETF Trends

It is no secret that select hedge fund managers carry with them an aura of glamor and star treatment society often reserves for athletes and entertainers.

So much so that some issuers of exchange traded funds have found success with offering investors ETFs that give investors access to some of the most widely held hedge fund equity positions. [A Glamorous Guru ETF]

Of course, hedge funds like ETFs as well and with just a few minutes of homework, investors can unearth which ETFs are popular with the hedge fund crowd. That does not mean investors should always mimic to a tee the ETF holdings of hedge funds.

“Hedge funds likely have their own reasons for holding certain ETFs when similar ones are cheaper. They need to know they can trade big stakes and still get good prices, so they want ETFs with lots of trading. Another reason is that they’ve owned a certain ETF for a long time and are comfortable with it,” reports Eric Balchunas for Bloomberg.

A good example of a hedge fund paying up for a pricier ETF when a comparable, lower-cost alternative is available is Ray Dalio’s Bridgewater Associates, one of the largest hedge funds in the world. As Balchunas notes, Bridgewater owns $3.3 billion worth of the iShares MSCI Emerging Markets ETF (EEM) .

EEM, the second-largest emerging markets ETF by assets, charges 0.67% per year, meaning Bridgewater could save its clients $15 million per year in expenses by converting over to the iShares Core MSCI Emerging Markets ETF (IEMG) . IEMG charges just 0.18% per year and with $5.2 billion in assets under management, it is clear IEMG does not lack for fans among institutional investors. [Core ETFs Gain Institutional Fans]

Hedge funds and other professional traders that enter an ETF for size may be apt to overlook an ETF’s fees in favor of what they perceive to be a liquidity advantage, such as the one EEM possesses over IEMG. The former trades an average of $2.1 billion per day compared to $54 million for the latter, according to Bloomberg.

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