Invest Like a Billionaire: Under the Hood of the IBLN ETF

by on November 3, 2014 | Updated November 4, 2014 | ETFs Mentioned:

ETFs have undeniably opened up the doors to asset classes that were previously accessible only by sophisticated and institutional investors. Through the use of a single ticker, retail investors can now tap into virtually any market around the globe; whether it’s trading commodities, volatility, and currencies, or investing in emerging markets, there’s no shortage of viable instruments thanks to the ongoing expansion of the exchange-traded universe [try our Free ETF Screener]. 

These investment vehicles have also made it easier, and cheaper, to utilize a number of strategies that were not too long ago simply out of reach for the masses. One such strategy revolves around following what the biggest investors on Wall Street are doing and how they’re allocating their capital. We recently had an opportunity to talk with Raul Moreno, the co-founder and CEO of iBillionaire; his firm, alongside Direxion Investments, is the driving force behind the recently launched iBillionare Index ETF (IBLN).

ETF Database (ETFdb): What was the inspiration behind creating the iBillionaire Index and partnering with Direxion to launch IBLN?

Billionaire PortfolioRaul Moreno (RM): iBillionaire launched in April 2013 as a mobile app that tracks billionaire investors like Warren Buffett, George Soros and Carl Icahn. Not long after coming onto the scene, we recognized that there was a bigger opportunity at hand to provide users with actionable services and products. That’s how the iBillionaire Index was born.

The iBillionaire Index was brought to life in November 2013. It curates a basket of 30 large-cap, U.S. stocks billionaire investors like best and serves as a sort of barometer for where the smart money is going, which companies and sectors these Wall Street magnates seem to agree are solid bets. We started talks with Direxion at the beginning of the year, and IBLN was launched in August. We believe that both the iBillionaire Index and ETF are excellent ways to provide users and investors actionable, transparent products [see our ETF Launch Center]. 

ETFdb: What is the methodology behind IBLN and how does it actually work? How does it rebalance?

RM: The iBillionaire Index is comprised of the 30 large-cap, U.S. equities in which a select pool of billionaire investors has allocated the most funds. It is rebalanced each quarter, based on the 13F filings that institutional investment managers are required to report to the SEC.

The index contemplates up to 10 billionaire investors, who are selected each year. The criteria for selection include net worth, assets under management, turnover ratio and performance.

ETFdb: How is this ETF similar to existing offerings like GURU and ALFA? How does it differentiate itself?

RM: Like GURU and ALFA, iBillionaire leverages smart-beta strategies and tracks public data gathered from hedge funds and institutional investment managers. See IBLN’s portfolio composition below:

Screen Shot 2014-10-16 at 10.58.23 AM

However, the iBillionaire Index contemplates only large-cap and mid-cap U.S. stocks. It does not allow for international equities–something included by both GURU and ALFA. ALFA also has the ability to short the market – something that is not true in the case of the iBillionaire ETF [try our Free ETF Head-to-Head Comparison Tool].

ETFdb: Would you consider IBLN as a core, or more tactical, holding? What else might investors find appealing about adding IBLN to their portfolios?

RM: The iBillionaire Index was designed as a strategic beta play on the S&P 500 and large-cap allocations in an investor’s portfolio – more of a core strategy. However, we have seen more and more advisors utilizing strategic beta as a tactical holding.

ETFdb: Based on your research, what are some of the most noteworthy trends that you expect to persist on the global stage? Are there any trends that you expect to reverse?

RM: In Q2, we saw a number of billionaires betting that the market downturn was ahead – George Soros’ largest position was a put in the S&P. Right now, it looks like a downturn could be upon us, and volatility is high. When quarterly filings come out again next month, it will be interesting to see how billionaires have reacted. My prediction would be that defensive positions have remained, or even increased. However, I wouldn’t be surprised if billionaires took advantage of volatility to do a bit of buying as well.

In terms of sectors, we’ve seen across several quarters that technology and consumer discretionary remain popular among billionaire investors. At the start of the year, there was a bit of a shift toward perhaps “safer” bets in both sectors. During the first quarter of the year, we saw a number of billionaires cash out of Netflix (NFLX) and Yahoo (YHOO), going for companies like Microsoft (MSFT) and eBay (EBAY) instead.

Moving forward, I think eBay will be an especially interesting case to watch. Carl Icahn has been quite vocal about the company in recent months, and we know Dan Loeb’s Third Point picked up a stake in the company in Q3. With the PayPal spinoff set for 2015, I bet other billionaires will be paying attention to it as well. 

The Bottom Line

Investing alongside Wall Street billionaires may have seemed like a far-fetched strategy for retail investors just a few years ago; however, thanks to the proliferation of ETFs, and more importantly the evolution of this product wrapper, anyone with an online brokerage account can now tap into such a strategy and many more. For those who are looking to mimic the portfolios of some of the world’s biggest investors, IBLN most certainly warrants a closer look under the hood. 

Follow me on Twitter @SBojinov

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Disclosure: No positions at time of writing.