How To Invest Like A Billionaire Using ETFs

The investment community has long been fascinated with the stock-picking prowess of billionaire investors such as Warren Buffett or Carl Icahn.

Until recently, the easiest way to access the best ideas of these rock star investors was to purchase their holding companies, such as Buffett’s Berkshire Hathaway (NYSE: BRK-B).

However, there's a newly-introduced vehicle that seeks to isolate the largest holdings from some of the world’s most successful billionaire investors in a diversified manner.

The Direxion iBillionaire Index ETF IBLN was launched on August 1. It's comprised of 30 large-cap U.S. equity holdings from a selection of billionaire investors.  Securities are selected according to a rules-based methodology that combs public Form 13-F filings, to decipher the largest holdings of the group.

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Up to 10 billionaires are selected from a pool of 50, based on their personal net worth, source of wealth, turnover and performance over time. In addition, each of the stocks within the index is equally weighted and rebalanced quarterly, to ensure each position has an identical contribution to the performance of the fund.

The goal of IBLN is to outperform the S&P 500 Index over time by investing in strategic pockets of value that these billionaires have identified.

This new ETF will compete with established alpha-seeking funds such as the Global X Guru ETF GURU and AlphaClone Alternative Alpha ALFA. Both ETFs replicate hedge fund strategies based on public disclosure data.

Investors Take Note

While the allure of tracking famous stock pickers can be compelling, investors in these ETFs should be aware that Form 13-F data is only published every 90 days. In addition, it will take time for the ETFs to identify changes in holdings and adjust accordingly.  Consequently, there is substantial lag time built in to the process of constructing these portfolios.

The advantage of these selective indexes is they have proven to beat the broad market under favorable conditions. For example, GURU jumped 49.33 percent, versus a gain of 34.45 percent in the SPDR S&P 500 ETF SPY last year. 

It will be interesting to watch the IBLN portfolio transform over time, as these billionaires move their chess pieces and adapt to changing market conditions.