Some Hedge Fund ETFs Love Healthcare Stocks

Some exchange traded funds that build their equity lineups based on stocks that frequently appear in 13F filings, so-called guru ETFs, feature solid exposure to the healthcare sector. Of course, that is the result of hedge funds continuing to load up on healthcare names as the sector continues to be the best-performing group in the S&P 500.

“Not only has the health care sector been the best performer in the S&P 500 index, rising 8.3% year-to-date through May 15, but it was also the most actively purchased sector by the ten largest hedge funds, according to recent research from S&P Capital IQ,” said the research firm. “The top bought sector in the first quarter of 2015 for the 10 hedge funds is health care with net buys totaling $4.8 billion, equal to the next four largest sectors combined.”

Interestingly, the $278.1 million Global X Guru Index ETF (NYSEArca: GURU), which includes high conviction picks taken from a select pool of hedge fund 13F information, is light on healthcare names relative to rival ETFs. [ETFs for Your Inner Hedge Fund Hero]

At the end of the first quarter, GURU’s healthcare weight was just 2.5%, making it the smallest sector weight in the ETF. No healthcare stocks are currently found among GURU’s top 10 holdings. Conversely, the rival AlphaClone Alternative Alpha ETF (NYSEArca: ALFA) features Valeant Pharmaceuticals (NasdaqGS: VRX) and Biogen (NasdaqGS: BIIB) among its top 10 holdings.

According to S&P Capital IQ, Valeant was the top buy and the top sell among hedge funds in the first quarter with the $3.7 billion in purchases and $1.4 billion in sells.

Seven other healthcare stocks that combine for over 8% of ALFA’s weight are also found in the ETF. The $146.7 million ALFA “tracks the performance of US-traded equity securities to which hedge funds and institutional investors have disclosed significant exposure,” according to AlphaClone.

“AlphaClone uses a proprietary “Clone Score” methodology to aggregate on a quarterly basis the ideas of hedge funds for which historically it has made the most sense to follow based on their disclosures. AlphaClone’s clone score for each manager is based on the monthly returns in excess of a broad market index and a fixed hurdle rate exhibited by the manager’s follow strategies over time,” according to S&P Capital IQ. [ETFs: Better Ways to Hedge Funds]