Courtesy 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 →