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hedge fund etf
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Hedge Fund ETF Pile On Leads To Crowd Control Issues

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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

Hedge Fund Traders Favor ETFs For a Reason

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indexuniverseCourtesy of Paul Amery, IndexUniverse.com

Hedge funds and index trackers are polar opposites: the highest- and lowest-fee ends of the investment product scale.

 

And yet a surprising number of hedge funders are fans of indexing. Reportedly, many are closet admirers, buying ETFs and index funds for their own portfolios—as though stepping out of a Ferrari and into a well-used family diesel when away from the public gaze.

 

Others have switched career to embrace tracker funds. Alan Miller, manager of a fund of ETFs at SCM Private, was once a hedge fund investor at New Star. Victor Haghani, partner at Long Term Capital Management in the 1990s, now looks after a $200 million portfolio of index funds and ETFs, Elm Partners.

 

Lars Kroijer, who ran an equity hedge fund, Holte Capital, between 2002 and 2008, is another convert. But the Dane no longer manages client money himself (though he sits on several fund boards). Instead, he’s turned author.

Following a well-received account of his hedge fund experiences (“Confessions of a Hedge Fund Manager”), published three years ago, Kroijer has written a new book, “Investing Demystified”, with the objective of explaining why index investing is the rational approach for almost all of us.

To continue reading the full story from IndexUniverse, please click above IU logo.

 

 

ETF News

Hedge Funds’ 10 most popular ETFs

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marketwatchCourtesy of Meena Krishnamsetty, Jake Mann and Alexandr Oleinic

Exchange-traded funds like the SPDR Gold Trust (ETF) have many similarities with regular stocks. However, even though it trades like a stock on the market, an ETF is a security that follows an index, a commodity or a basket of assets, so it has some particularities as an index fund. Because it acts like a stock on the market, but also because of the low cost and tax efficiency, an ETF can represent an interesting investment opportunity.

With ETFs on the brain, we’ve compiled a list of the 10 most popular ETFs among hedge funds, because it’s crucial for investors to know how the big boys are trading their portfolio holdings. We’ve also discovered a few strategies with market-beating potential by following hedgies, and it’s possible to do so without paying an arm and a leg.

1. SPDR Gold Trust ETF

It’s no surprise that the SPDR Gold ETF is numero uno, as 67 of the 450 hedge funds we track were long at the end of the last 13F filing period, the fourth quarter of 2012. While overall fund interest shrank from 76 one quarter earlier, some of the top hedge funds invested were John Paulson’s Paulson & Co, Jean-Marie Eveillard’s First Eagle Investment Management, and Michael A. Price & Amos Meron’s Empyrean Capital Partners. To the dismay of this group, the SPDR Gold Trust’s year-to-date return sits at around -12%.

2. Financial Select Sector SPDR

There was a large disparity between hedgies’ favorite ETF, and their second favorite. Twenty-seven of the funds we track are bullish on Financial Select, up slightly from 26 in the third quarter, and this increase in interest has been met with solid appreciation. The ETF is up nearly 14% since the start of 2013, rewarding Jim Simons’s Renaissance Technologies, Louis Bacon’s Moore Global, Paul Tudor Jones’s Tudor Investment Corp, among others. Continue reading →

ETF News

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

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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 →