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.
3. iShares MSCI Emerging Markets Indx
Twenty-five of the hedgies we track are bullish on this EM ETF, including Ray Dalio’sBridgewater Associates, Stanley Druckenmiller’s Duquesne Capital, and Peter Rathjens, Bruce Clarke & John Campbell’s Arrowstreet Capital. This aggregate figure is down from Q3’s 32-fund mark, and this iShares product is down nearly 3% year-to-date.
4. iShares FTSE/Xinhua China 25 Index
Twenty-six hedge funds were invested in FXI at the end of Q3, and this number has shrank to 23 of late. The FTSE/Xinhua index ETF has lost more than 7% since the beginning of the year, likely cramping the style of Louis Bacon’s Moore Global, Christopher Medlock James’s Partner Fund Management, and Noam Gottesman’s GLG Partners, some of the ETF’s most committed investors.
5. iShares Russell 2000 Index
Fifteen hedge funds dropped their holdings in the iShares Russell 2000 Index ETF heading into Q4 of last year, though 20 managers remained, and they’ve been happy campers since the start of the year. This ETF is up more than 11% year-to-date. Three of the most bullish investors include David Dreman’s Dreman Value Management, D.E. Shaw’s D.E. Shaw & Co., and Eliav Assouline & Marc Andersen’s Axial Capital.
For the entire article from WSJ MarketWatch, please click here