Global X announced today the launch of a new ETF that will be based on top holding of hedge fund managers, essentially arming investors with a tool to replicate the strategies implemented by some of the world’s most sophisticated and most successful money managers. The new Top Guru Holdings Index ETF (GURU) will be linked to an index that is comprised of the publicly-disclosed equity holdings of certain hedge funds. In other words, GURU will attempt to mimic the positions and strategies implemented by hedge funds–many of whom have a proven track record of consistently generating alpha. The underlying index will include only hedge funds with concentrated top holdings, and will exclude funds that have historically exhibited high turnover.
The index underlying GURU will be constructed by using 13F filings made by hedge funds with the SEC. Institutional investors with $100 million or more in assets under management are required make 13F filings within 45 days of the end of each quarter, thereby shedding some light on their portfolios and strategies. As such, there exists the potential to utilize this information to replicate strategies being implemented by investors such as John Paulson, David Einhorn, and others [see ETFs To Invest Like Buffett, Paulson, & Fisher].
Some have noted that there are some potential drawbacks to implementing a “hedge fund replication” strategy through an ETF. Besides the time lag, there are potential issues with the incompleteness of these filings and the nuances of net exposure reported.
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Under The Hood
The index to which GURU is linked consists of approximately 50 individual stocks, and is equal weighted (meaning that each security represents about 2% of the underlying portfolio). GURU will include both domestic and international securities, and will some maintain exposure to emerging markets as well. At launch, some of the GURU holdings include Apple, BHP Billiton, AIG, and America Movil.
From a sector perspective, a few biases are noticeable. Technology stocks represent about 22% of the portfolio, with financials (18%) and industrials (16%) also representing significant portions of assets. Telecom (4%) makes up the smallest sector allocation, while health care, consumer services, consumer goods, and basic materials each represent about 8% of the portfolio.
Hedge Fund ETFs In Focus
GURU’s launch comes on the heels of the debut of the AlphaClone Alternative Alpha ETF (ALFA), which implements a generally similar strategy. That ETF, launched through a partnership with AlphaClone and Exchange-Traded Concepts, tracks an index consisting of stocks to which hedge funds and institutional investors have disclosed significant exposure. ALFA also has the capability to vary between a traditional long only portfolio and a market hedged strategy based on relative price targets.
GURU will charge an annual expense ratio of 0.75%; by comparison, ALFA charges 0.95%.
Disclosure: No positions at time of writing.