Retail investors can glean into the outlook of some of the largest billionaires through ETFs that specifically select popular company stocks among institutional investors.
For instance, consumer discretionary and healthcare are the two largest sectors in the Direxion iBillionaire Index ETF (NYSEArca: IBLN) at 30.8% and 24.7%, respectively, according to Morningstar data.
These hedge fund-esque ETFs track holdings selected from quarterly hedge fund disclosure. 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.
As of the most recent rebalance, IBLN added more healthcare and consumer discretionary exposure, including Abbvie (NYSE: ABBV), Baxter International (NYSE: BAX), Starwood Hotels (NYSE: HOT), Netflix (NasdaqGS: NFLX), Perrigo (NYSE: PRGO) and Yum! Brands (NYSE: YUM).
According to a Direxion research note, the access to cheap capital has helped innovation driven sectors, like biotech and technology, and fueled increased merger and acquisition activity. Healthcare M&A activity also accounted for almost a quarter of U.S. acquisitions this year, strengthening the sector.
Moreover, Direxion argues that billionaires are betting on consumers’ stronger purchasing power both domestically and internationally. For instance, Dan Loeb has a $1 billion position in YUM and pointed to opportunity in China where it is seeing a rising middle class.
ETF investors may also find similar themes in other hedge fund-replicating ETFs. For instance, the AlphaClone Alternative Alpha ETF (NYSEArca: ALFA) also includes a 18.3% position in consumer cyclicals and 23.7% in healthcare. However, the fund recently trimmed exposure to healthcare on profit taking after the outperformance. [Where This Hedge Fund ETF is Going Shopping]
The financial and technology sectors are also overweight areas. For instance, IBLN includes 20.4% technology, but it does not hold much financial exposure. ALFA, on the other hand, includes 18.2% tech and 8.0% financials
The Global X Guru Index ETF (NYSEArca: GURU), which includes high conviction picks taken from a select pool of hedge fund 13F information, includes a 22.1% tilt toward consumer discretionary, along with 14.0% financials and 15.6% tech, but a lighter 11.1% to healthcare.
The managers of the Validea Market Legends ETF (NasdaqGM: VALX), an actively managed exchange traded fund, that selects and scores stocks using proprietary models based on the approaches of famous investors such as Warren Buffett and Peter Lynch, holds tech 22.0%, consumer discretionary 19.0%, financials 18.9% and healthcare 11.2%.
Potential investors, though, should be aware that these ETFs select company holdings based on previous quarterly 13F data, so there is a chance that billionaire investors may have significantly changed their outlook through the course of the new quarter.
For more information on the alternative index funds, visit our smart beta category.
Max Chen contributed to this article.