Guru ETFs Reveal Hedge Fund Strategies

The Ira Sohn Conference taking place this week in New York is an annual gathering of premiere hedge fund managers that raises money for cancer research.  The all-star list of big-league investors includes David Einhorn, William Ackman, Jeffrey Gundlach, and several other notable names. 

Each participant is expected to give a brief update on their best idea or investment strategy that coincides with the current market environment.   While the average investor will get only a brief glimpse of the true portfolios these titans manage, it is possible to access a portfolio of hedge fund favorites using an ETF.

The Global X Guru Index ETF (GURU) is comprised of top U.S.-listed equity positions reported on Form 13-F by a select group of well-known hedge funds.   Each hedge fund that has a concentrated position of more than $100 million in a specific security must file Form 13-F to disclose the holding.  This allows the broader public a peak (albeit 45 days old) at the hedge funds top weightings at the end of each quarter. 

Currently this ETF has net assets of over $500 million invested in approximately 50 underlying securities with an annual expense ratio of 0.75 percent.  The top three holdings in GURU include: Delta Airlines (DAL), Celanese Corporation (CE), and Spirit Aerosystems (SPR).  Each holding within the underlying index is equally weighted and screened for liquidity purposes.

One of the advantages of investing in an ETF rather than a traditional hedge fund is that you will avoid the hefty 2% management fee and 20% performance fee that is typical of the industry.  In addition, you get daily liquidity of your investment dollars which is not available in private-label investment vehicles.

Over the last two years, the performance of GURU has been quite impressive versus a traditional large-cap benchmark such as the SPDR S&P 500 ETF (SPY).  Over that time frame, GURU has gained 62.23 percent, while SPY has returned 42.32 percent. 

The unique index construction methodology of GURU has clearly been worth the premium expense ratio when comparing total return during this period.  To follow up on the success of this initial ETF, Global X Funds also recently launched a small cap alternative in the Global X Guru Small Cap Index (GURX). 

Both of these ETFs offer innovative ways to access previously hard to find data on private fund holdings and will be interesting to watch as their underlying constituents change over time.