ETF of the Day – Invest Like a Hedge Fund (GURU, S, GOOG, MSFT, PG)

For a number of reasons, most investors will never put their money into a hedge fund. While this decision may be good or bad, based on the performance of the specific hedge fun, a large portion of hedge funds consistently beat the overall market performance.

The goal of the Global X Guru ETF GURU is to aggregate on a quarterly basis the ideas and knowledge of the hedge fund managers into portfolio of individual stocks. By using a proprietary methodology, the Solactive Guru Index, which GURU tracks, compiles the highest conviction stocks held by hedge funds with over $100 million in assets under management. Each quarter the portfolio is rebalanced to reflect any changes made by the hedge fund managers.

Since the beginning of this year GURU is up 42 percent versus a gain of 26 percent for the S&P 500. Since it’s inception in early June 2012, the ETF is up 70.5 percent versus a return of 43.9 percent for the S&P 500. For an investor that put $10,000 into the ETF it is a difference of $2,660.

The current top holding for the ETF, which only accounts for 2.1 percent, is Sprint Corp S. There are a total of approximately 50 stocks in the portfolio. Versus the S&P 500 the ETF is overweight the materials, consumer discretionary, industrials, and telecom sectors. The sectors the ETF are most underweight versus the index are the consumer staples and utilities. The ETF is clearly leaning towards the more cyclical and economically sensitive sectors, which tend to do well during a strong bull market.

The ETF performed its quarterly rebalance of positions on 11/21/13 and it sold 15 positions and added 14 new stocks. Noteworthy sells included Google GOOG, Microsoft MSFT, andIntel INTC. Stocks that were added to the ETF included Proctor & Gamble PG, Family Dollar FDO, andHess Corp HES.

With the current portfolio allocation leaning towards the more aggressive side, GURU should continue to outperform this quarter as long as the bull market stays intact. Any sharp pullbacks would likely lead GURU to underperforming the overall market indices. As a long-term play, the ETF should be able to adjust to the market swings and if history is any indication, GURU looks like a winner.

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