After a spring lull, the ETF world appears to be revving up on the product development front in the summer months as a flurry of new funds have hit the market as of late. In the latest launch for the New York-based issuer Global X, the company has expanded its reach into the broad market space with a focus on hedge funds.
The latest fund, the Top Guru Holdings Index ETF , looks to target the increasingly popular hedge fund replication market, giving investors exposure to a wide range of hedge fund managers by looking at 13F filings. These filings, which are required on a quarterly basis by the SEC for institutional money managers with over $100 million qualifying assets, offer a window into hedge fund moves and can potentially be replicated by diligent money managers.
In particular, GURU looks to use these filings to build a diversified portfolio that can be easily bought and sold in ETF form. This will hopefully give investors a way to gain exposure to hedge fund techniques without having to pay the traditionally high fees inherent in many hedge funds, which often includes a 2% management fee and 20% of profits. Below, we highlight the strategy of this new ETF for those who may be considering an allocation for their portfolio during this uncertain market environment:
GURU Methodology In Focus
The product tracks the Top Guru Holdings Index, which is comprised of the top U.S. listed equity positions reported on Form 13F by a select group of entities that Structured Solutions AG characterizes as hedge funds. The index provider then filters from this group down to funds with concentrated equity positions and those with longer position holding periods (read Buy These ETFs For The Global Population Boom).
With this selection process, the firm then looks at 13F filings for these companies in order to determine their top holdings and where they are moving money. Since the list only includes hedge funds that have longer holding periods and concentrated positions, the index provider believes that the 13F filings for these money managers can be a good indicator of their movements and thus offer investors exposure to a similar strategy in ETF form.
In total, the index provider looks to take the top holding—or highest conviction idea-- from each of the selected hedge funds and then equally weights the securities in the benchmark. Currently, this produces a product that has about 50 securities and charges 75 basis points a year in fees, a big departure from the 2 & 20 structure that is often popular with ‘traditional’ hedge funds (see Does Your Portfolio need A Hedge Fund ETF?).
At time of writing, the portfolio was tilted towards large caps but was pretty well spread out by industry. Technology (21.6%), financials (17.7%), and industrials (15.7%) take the top three spots by sector, while the product appears to be light in telecommunications as this segment accounts for less than 4% of the portfolio.
While there are a number of hedge-fund replication ETFs on the market that use a fund-of-fund approach, there is only one other fund that uses a stock selection methodology. This product debuted just days before GURU and comes from brand new ETF issuer AlphaClone (see Invest Like The One Percent With These Three ETFs).
This new product, ALFA, looks to use the company’s proprietary ‘CloneScore’ in order to select managers and positions for the portfolio while also using an equal-weight methodology for its assets. Since the ETF just launched, it has not been able to build up assets as of yet but looks to be an interesting and very apt competitor for GURU setting up a nice battle for supremacy in the hedge fund ETF market (read AlphaClone Launches Hedge Fund Tracking ETF).
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