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.
Piggybacking the elite hedge fund managers sounds like a good idea, but what makes this endeavor tricky is these managers may already be out of certain stocks by the time the 13F’s are filed. Not to mention, not all hedge fund legends are legendary all the time. Sure, David Einhorn has been of fire as of late, but John Paulson’s eponymous Paulson & Co. struggled through a nasty 2011.
In GURU’s defense, it charges just 0.75% per year and all of the profits are the investor’s to keep. At least that’s a better deal than one would get with the typical hedge fund.
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GURU ETF Does Not Replicate Hedge Fund Performance!!!he funds seem like an interesting investment, and the idea may well catch on, but there are many reasons to be wary. Many investors will know the facts stated below, but it is necessary to reiterate them.
By definition, in a hedge fund’s 13F filings they disclose what equities they were holding at the end of the previous quarter. These disclosures have to be made within 45 days of the close of the quarter.
First of all, the 13F filings which the ETFs are ‘tracking’ will not clone hedge fund performance. The filings have to be made, legally, within 45 days of the end of a quarter. Most funds wait out that entire period and file their reports on the last possible day.
That leaves the new ETF at least 45 days behind the market. Much can change in a 45 day period, and the ETF will be vulnerable to those changes. This leaves the ETF far behind both the long thought out and split second decisions made by hedge funds. It is the brain power behind these funds that lead to their success.
The fund will only track hedge funds that disclose more than $500 million in its ETF filings. It will also weed out hedge funds that tend to have a high equity turnover, though it is not clear what the fund considers high.