In mid-February 2025, some in the media will be excitedly discussing what stocks were bought or sold by hedge funds in Q4 2024. However, thanks to the Unlimited Hedge Fund Barometer, we can understand today that long/short equity managers were avoiding more cheaply valued small- and midcap stocks in favor of growth stocks. Meanwhile, corporate credit exposure was partially cut back by hedge funds in late 2022 due to credit spread compression. Credit spread exposure still remained high, per the report.
Tapping Into Hedge Fund Expertise
Unlimited was founded by Bob Elliot, who was previously on the investment committee at hedge fund provider Bridgewater Associates. The Unlimited HFND Multi-Strategy Return Tracker ETF (HFND ) launched in 2022.
HFND uses a proprietary machine-learning algorithm to create the most recent month’s returns of each hedge fund style. Examples include long/short equity, global macro, fixed income arbitrage, and managed futures. Meanwhile Elliot’s former firm, Bridgewater Associates, recently partnered with State Street Global Advisors for an ETF that is expected to launch later in 2025.
According to the Unlimited report, heading into 2025, fund managers appeared cautious. There was little indication of a desire to either chase the broad-based rapid run-up from 2024 or bet on weakening assets. Outside of growth equities, a long-U.S.-dollar position was one of the few areas where managers were taking on risk. Unlimited believes the driver appeared focused on weak exchange rate pressures in Canada and Europe.
What Does HFND Own?
Rather than invest in hedge funds, HFND consists of long or short positions in ETFs and futures contracts. As of late January, the iShares Broad USD High Yield Corporate Bond ETF (USHY ) was the largest position, representing approximately one-third of fund assets. USHY is a $19 billion ETF with an 0.08% expense ratio. Half of USHY assets are in bonds rated BB, with most of the remainder in securities rated B- and CCC.
The Technology Select Sector SPDR ETF (XLK ) and the Vanguard Growth ETF (VUG ) were recently the next two largest ETF positions. XLK is a $74 billion fund with a 0.09% expense ratio. The tech fund is market-cap-weighted, with Apple, Microsoft, and Nvidia representing between 12% and 14% of fund assets. Meanwhile, VUG is a $160 billion ETF with a 0.04% fee. While VUG provides multisector exposure, more than half of its assets are in information technology stocks, per the fund’s website. Consumer discretionary and industrials are also represented in VUG.
HFND also has exposure to the iShares Convertible Bond ETF (ICVT ) and the Invesco Senior Loan ETF (BKLN ). Commodity and currency futures can also be found in HFND.
Advisors Are Interested in ETF Alternatives
VettaFi has heard from advisors seeking an alternative ETF given the uncertainty in the equity and fixed income markets. For those wanting to tap into hedge fund positioning and leverage the expertise of former Bridgewater Associates leader, HFND is worth looking into. I’ll be interested to see in a few months how the hedge fund community was positioned with a new administration in place.
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