Hedge Funds Love These ETFs

Count hedge funds among the professionals that are increasingly using exchange traded funds.

“On aggregate, Bank of America Merrill Lynch reports that hedge funds owned $36.9 billion worth of ETFs at the beginning of the third quarter,” according to Zero Hedge.

While $36.9 billion is just a speck to an industry that is rapidly approaching $2 trillion in assets under management, consider this: Hedge fund ownership of ETFs was up 12.1% at the start of the third quarter from the second quarter. BofAML’s “universe consists of 758 ETFs listed in the US with market caps of at least $100mn as of June 30, 2014,” according to Zero Hedge.

At the end of the second quarter, the Vanguard FTSE Emerging Markets ETF (NYSEArca: VWO), the largest emerging markets ETF by assets, was the ETF most owned by hedge funds, according to BofAML. Of the top-10 ETFs owned by hedge funds, just four – the iShares Russell 3000 ETF (NYSEArca: IWV), Vanguard Dividend Appreciation ETF (NYSEArca: VIG), Market Vectors Agribusiness ETF (NYSEArca: MOO) and the iShares U.S. Home Construction ETF (NYSEArca: ITB) – feature exposure to U.S. equities.

There are some interesting themes. For example, VIG, the largest U.S. dividend, has lagged an array of competing dividend ETFs by significant margins since the March 2009 market bottom. [Revisiting a Familiar Dividend ETF]

Second, MOO has been a laggard in recent years and only three ETFs have lost more assets than the agribusiness fund this year. Interestingly, more than 10% of MOO is currently owned by hedge funds and no ETF on the list saw a bigger second-quarter increase in hedge fund ownership than did MOO. [Investors Depart Agribusiness ETFs]