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Will GURU ETFs invest like Hedge Funds?

A person often apes his Guru to simplify any aspect of his or her life and the Hedge Fund ETF intends to do just that. A GURU ETF takes this fairly normal habit to the world of (equity) investments to develop a near perfect portfolio. The underlying index works on logic derived after the study of 13 F filings /reports and gathers a (track) record of the trades of top hedge fund managers, further more these billion dollar funds are screened for stability and the average asset holding time.

Some investors fall short of necessary time and knowledge to carry on their own analysis and investigation work, therefore best suited for them is the ETF route. An equity traded fund that tracks the topmost names and trends in the realm of investment globally and it will invest like a hedge fund but without the huge fee and expense costs.

Form 13 F mandates top institutional investors to make public, their (share) holdings to the SEC every three months although applicable only to firms having than $ 100 million dollar of capital transactions.

The online network offers enough web services that carry upon themselves the task to give out the names and holdings of big investors. This service reduces the complexities involved in self-study of a bundle of pages full of financial terminology and most of it could be hard to decode. The 13 F excavating job is carried on by web sites like GuruFocus, AlphaClone and InsiderEdge to name a few.

The top hedge fund holdings ETF sounds like a powerful pre packed portfolio yet it will face a steep weakness on some counts.

•  The tracking strategy faces a lag in terms of the same ideal conditions and reasons that were present at the time; an institutional investment was made in a certain security. Popular logic believes that by the time the holdings are made public, their upsides may be limited in most cases when an ETF picks it up.

•   Many major investments by these top managers are not traded publicly. Subsequently they do not reach the ETF as it only picks up for its basket, stocks that are listed on an exchange.

•  ETF does not differentiate stocks that are more promising from the rest as an equal weightage is given to each security. Perhaps a greater scope of profit making is thus limited within perimeter of this policy.

•  Every quarter the holdings in the portfolio are re-shuffled and balanced with the new pronouncement of the 13 F filings, this strategy if not timed well with the market conditions may even result in loss of principal, thus getting a fair clarity on the process of reshuffling is a good idea when getting exposure to a Hedge Fund ETF.

An attempt to emulate the procured returns of some of the top funds available today is the pure investment objective here and again in comparison with the Hedge Funds that charge 2% operational and a variable 20% fees on profits, their ETF counterparts charges about 0.60% – 0.90% on annual trades, depending on the fund issuers.

A low risk is achieved with the same exposure because typical top Hedge Fund holdings ETF works in way that it will pick the best investment idea from each of the selected Hedge Fund or in other words the top holding of the say best 40-60 hedge funds available in the active markets today. Once the pick of the litter technique is applied, the weight age is then spread equally among all the selected equities, without favouring any of it.

Global X Top Hedge Fund Holdings ETF delivers as per the performance of the Solactive name sake index. The GURU ETF charges 0.75% operational fees on annual transactions and post expenses have delivered 12.91% in the first quarter ending 31st March ’13, for those who participated at NAV prices.

On July 10, the SEC adopted a new rule lifting the ban on general solicitations and advertising for broker-dealers and for hedge fund and private equity fund…
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