Most people may not be able to invest directly into a large hedge fund, but retail investors can track some of the top hedge fund stock picks through exchange traded funds.
ETFs will typically try to reflect the performance of a benchmark index, and there are some offbeat ETFs that track specialized indices, allowing investors to invest like hedge fund titans, writes Bob Pisani for CNBC. [Two ETFs for Your Inner Hedge Fund Hero]
For instance, the Global X Guru Index ETF (GURU) is comprised of high conviction ideas based on 13F filing data from a select pool of hedge funds.
The SEC Form 13F, or Information Required of Institutional Investment Managers Form, is a quarterly filing required of institutional managers with over $100 million in qualifying assets. The filing contains information on the manager’s list of recent investing holdings, which provide the public a glimpse of how the heavy weights are moving around the changing markets.
Since the ETF’s holdings are based on numbers from the previous quarter, potential investors should be aware that the ETF’s positions may become stale in a quickly changing market. Additionally, the ETF may not perfectly reflect hedge fund positions as many hedge funds utilize derivatives, which are not required to be disclosed.
Nevertheless, GURU has generated an impressive 41.2% return over the past year, compared to the S&P 500′s 28.2% gain.
The AlphaClone Alternative Alpha ETF (ALFA) also provides a hedge fund replication strategy. The ETF’s underlying index selects stocks from managers with the highest ranking, or “Clone Score.” Additionally, the index can vary from long only positions and market hedged based on rules-driven relative price targets. Holdings are also rebalanced quarterly. ALFA is up 31.0% over the past year.
For more information on the ETF industry, visit our current affairs category.