Legendary hedge fund managers and financiers, such as Bill Ackman, David Einhorn and Carl Icahn, are legendary for good reasons.
However, that does not make their equity holdings immune to broad market sell-offs. In fact, the recent pullback in U.S. stocks has proved particularly punishing for some of the most widely held stocks by hedge funds. As a result, some guru exchange traded funds are badly lagging the S&P 500.
Over the past month, the benchmark U.S. index is down about 6.4%, but over the same period, the AlphaClone Alternative Alpha ETF (NYSEArca: ALFA) is lower by 8% while the rival Global X Guru Index ETF (NYSEArca: GURU) is off 9%. Investopedia defines beta as “a measure of the volatility, or systematic risk, of a security or a portfolio in comparison to the market as a whole.”
On that basis, it would appear that ALFA, GURU and comparable ETFs have recently fit the definition of “high beta.” The hedge fund ETFs track holdings selected from quarterly hedge fund disclosures. The SEC Form 13F, or Information Required of Institutional Investment Managers Form, is a quarterly filing required of institutional managers with over $100 million in qualifying assets. The filing contains information on the manager’s list of recent investing holdings, which provide the public a glimpse of how the heavy weights are moving around the changing markets. [Hedge Fund ETFs Could be Vulnerable in Volatile Markets]
Mimicking hedge fund managers’ favorite stocks has worked in strong bull markets, despite the facts that these ETFs’ holdings are based on numbers from the previous quarter and that the ETFs may not perfectly reflect hedge fund positions as many hedge funds utilize derivatives, which are not required to be disclosed. [A Gorgeous Guru ETF]
Last year, GURU and ALFA gained 47.3% and 36.4%, respectively, each easily topping the 32.3% returned by the S&P 500. The past month has brought starkly different performances.