ETFs Provide a Glimpse of Institutional Investment Picks

July 23rd at 9:00am by Tom Lydon

Investors have had a hard time getting a steady pulse on the mercurial equities markets and stock exchange traded funds. However, investors can get hints through information provided by the prominent experts and stock gurus.

All large institutional players need to disclose holdings to the Securities and Exchange Commission through Form 13-F, which is also available to the general public, writes Charles Sizemore for MarketWatch. [Breaking Down the New Hedge Fund ETFs]

While it may be a rather tedious endeavor to meticulously peruse the legalese, ETF investors may turn to investment funds that have done all the work for you.

For instance, the Global X Top Guru Holdings Index ETF (NYSEArca: GURU) holds a portfolio of equally-weighted mix of “high conviction” picks from prominent hedge funds, including David Einhorn’s Greenlight Capital, John Paulson’s Paulson & Company and Seth Klarman’s Baupost Capital, among others.

Investors get the change to bank on top investment ideas at the fraction of a cost – hedge funds require a standard 2% of assets and 20% of profits, whereas GURU charges a 0.75% expense ratio.

Currently, some of the ETF’s more familiar holdings include names like Microsoft, Apple, JPMorgan and American International.

Nevertheless, Sizemore lists some caveats:

  • ETFs only track listed stocks publicly traded on exchanges. Institutional investors may acquire positions in private companies.
  • While GURU’s holdings are equally weighted, higher positioned stocks are provided no greater weighting and the risk-management aspects of a position sizing are not factored in.
  • The ETF only follows long positions. Institutional investors may follow pair trades, and the ETF managers would not know about these positions.
  • The Form 13-F is not provided daily, so the ETF’s positions come with a time lag – a guru hedge funder may no longer have their stated holdings.
  • Like most new ETF products, GURU currently has very little assets under management and low trading volume.

For more information on hedge funds, visit our hedge fund category.

Max Chen contributed to this article.

The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.

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