Tag Archives: ALFA

Hedge Fund ETF Pile On Leads To Crowd Control Issues

November 25, 2015 MarketsMuse Curator Leave a comment

A pile on approach is impacting hedge fund emulator ETF products (e.g. $GURU, $ALFA), and leading to crowd control issues, according to a recent Bloomberg article re-distributed via TradersMagazine story with title:

Hedge Fund-Replicating ETFs Hurt by Crowded Trade Selloff

MarketsMuse curators carry the story here..

(Bloomberg) — Exchange-traded funds designed to mimic the strategies of hedge funds are mimicking their way into some serious losses of late.

Since the start of August, the Global X Guru Index ETF, (NYSE:GURU) which is tied to hedge funds’ top holdings using 13F filings, has slipped 10 percent, a casualty of popular trades that fell during this summer’s selloff and have so far failed to get back up. The Standard & Poor’s 500 Index has declined just 1.2 percent over the same period and recovered all of its 11 percent August correction.

“When something like this is opened up to retail investors, they tend to get the worst out of the deal,” said Bill Schultz, who oversees $1.2 billion as chief investment officer at McQueen, Ball & Associates Inc. in Bethlehem, Pennsylvania. “It’s not something that we find particularly attractive for our clients.”

The AlphaClone Alternative Alpha ETF, (NYSEarca:ALFA)which tracks the performance of U.S. equities to which hedge funds and institutional investors have disclosed “significant” exposure, has lost 19 percent since the start of August.

While lining up with the biggest speculators can make sense when markets rise, it has the potential to increase the pain on the way back down as everyone bails from losing bets at the same time. Trepidation has been in no short supply among money managers, with funds run by Stan Druckenmiller, Louis Bacon and David Tepper among those that disclosed declines in U.S.-listed equity holdings in the third quarter.

Quick selloffs are even more pronounced for stocks with “crowded” hedge fund positioning, according to Stan Altshuller, chief research officer at Novus Partners Inc. Novus measures crowdedness not only by the percentage ownership by hedge funds, but also by how many different firms are invested at the same time and how easy it would be for them to liquidate, he said.

Using this approach, a basket of the 20 most crowded stocks has trailed the S&P 500 by 21 percent from the start of June through Nov. 4, Novus data show. Companies such as Community Health Systems Inc., which decreased as much as 59 percent over the period, and Ally Financial Inc. are to blame for the underperformance.

“Nobody seems to grasp the severity of crowding as a risk,” Altshuller said by phone. “When the opportunity to exit is narrow, and there are a lot of funds in the stock, that creates the most dangerous type of situation. These stocks get absolutely crushed in times like these.”

Aligning one’s holdings with those of hedge funds hasn’t always been a losing proposition. A Goldman Sachs Group Inc. gauge that identifies the most popular bets across firms had annual returns exceeding the S&P 500 in each year from 2012 through 2014. That’s changed in 2015, with the Hedge Fund Very Important Positions Index trailing the benchmark index by 5 percentage points year-to-date, Goldman Sachs data show.

The full story from Bloomberg LP is here

ETF News

A Look At The New Hedge-Fund Guru ETF (GURU, ALFA, CPI)

June 5, 2012 MarketsMuse Staff Reporter Leave a comment

By Benzinga.com

For those that have always wanted to invest in a hedge fund, but can’t afford those pesky minimum investments (often well into six and seven figures) or for those that want to part with 2% or 3% in management fees on top of 20%-30% of the profits, the ETF industry is attempting to come to the rescue.

Hedge fund ETFs have been around for several years, but some new entrants to the hedge fund ETF game have popped up recently. The newest is the Global X Top Guru Holdings Index ETF GURU +0.33% , which debuted today.

GURU’s goal is to aggregate on a quarterly basis the expertise and knowledge of hedge fund managers into the transparent, cost-efficient and easily accessible format of an ETF—with no minimum investment, according to a statement issued by New York-based Global X.

Home to 52 stocks, GURU is an equal-weight fund as each of its constituents has an allocation of 1.96%. The ETF’s roster includes Apple AAPL -0.26% , Google GOOG -1.41% , Microsof MSFT -0.16% , Kraft KFT -0.13% , J.P. Morgan Chase JPM +3.19% , BHP Billiton BHP +0.59% and Cisco Systems CSCO +0.06% .

GURU tracks the top Guru Holdings Index uses a proprietary methodology to compile the highest conviction ideas from a select pool of hedge funds where the 13F information is most valuable. Hedge funds with high turnover and non-concentrated positions are eliminated from the pool. The fund is designed to rebalance quarterly in accordance with the 13F reports to capture any significant position changes, Global X said in the statement. Continue reading →

ETF News, Strike Price

AlphaClone ETF Invests In Hedge Fund Equity Positions

May 31, 2012 MarketsMuse Staff Reporter Leave a comment

The AlphaClone Alternative Alpha ETF (ALFA), which began trading on Thursday, will invest in disclosed equity positions held by established hedge fund managers—the first ETF to do so.

The new ETF “seeks to capture alpha from these managers’ long positions while protecting against protracted market downturns through a dynamic hedge mechanism.” Its strategy has been derived from the research and hedge fund replication methodology developed by AlphaClone and its founder and CEO Mazin Jadallah and is based on the passive, risk-managed AlphaClone Hedge Fund Long/Short Index.

The index directly selects its long positions from public disclosures using a proprietary ranking system which measures the efficacy of following managers based on their disclosures over a complete market cycle (since 2000). The index also incorporates a rules-based hedge mechanism that adjusts holdings between being long-only and market-hedged based on certain technical price targets for a broad index of U.S. equities.

“AlphaClone offers our separate account clients strategies that expertly combine long hedge fund equity positions with disciplined downside protection,” says Jadallah, “With the introduction of ALFA, investors around the world can now access our proven investment approach in a transparent and easy to access vehicle that can help navigate today’s challenging market environment.”

The ETF is the first to result from AlphaClone’s partnership with the International Securities Exchange, a leading U.S. options exchange.

Exchange Traded Concepts serves as investment adviser to the new ETF.