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Hedge Funds Using ETFs for Trades


Exchange traded funds have found their way into self-directed brokerage accounts of the average retail investor, financial advisor investment strategies, and even the world’s largest hedge fund.

According to the hedge fund’s quarterly 13F report, Bridgewater Associates, which overseas $140 billion in investments for institutions such as pensions, endowments and foundations, held heavy allocations in three ETFs: the iShares MSCI Emerging Markets Index ETF (EEM) , SPDR S&P 500 Trust ETF (SPY) and Vanguard MSCI Emerging Markets ETF (VWO) , reports Ryan Glosier for The Motley Fool.

As of March 31, the hedge fund held $3 billion in EEM, $3.3 billion in SPY and $3.6 billion in VWO. To put this in perspective, Bridgewater held around $11 billion in equity positions, with Microsoft as its largest single stock holding with a little over $40 million.

Recently, the emerging market performance has been disappointing, especially compared to the phenomenal returns in previous and to rally in the U.S. markets. Nevertheless, the EEM ETF provides individual investors with the right exposure to the emerging markets, and Bridgewater seems to remain bullish on the regions. [Outperforming ETF for Emerging Markets Hits Rough Patch]

Glosier opines that Bridgewater also thought it best to split its emerging market exposure between EEM and VWO for liquidity reasons so that the hedge fund did not have an extremely large foot print in just one of the funds. Additionally, the two funds provide varying exposure.

Notably, VWO has a 0.59% distribution yield and EEM has a 12-month yield of 1.78%. Additionally, VWO follows the FTSE emerging market index, whereas EEM tracks the MSCI index.

Moreover, SPY has acted as a great proxy for exposure to the S&P 500 stocks. A lot of investors are already utilizing SPY as a core component in an equity portfolio.

Given the interest in ETFs among hedge funds, it is safe to say that the passive investment approach and low fees have made ETFs a very attractive investment vehicle across various investment groups.

For more information on ETFs, visit our ETF 101 category.

Max Chen contributed to this article.

Full disclosure: Tom Lydon’s clients own SPY and EEM.

The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.