ETF of the Week: Goldman Sachs Hedge Industry VIP ETF (GVIP)

VettaFi’s vice chairman Tom Lydon discussed the Goldman Sachs Hedge Industry VIP ETF (GVIP) on this week’s “ETF of the Week” podcast with Chuck Jaffe of “Money Life.”

GVIP offers exposure to the hedge fund industry’s favorite stocks in an ETF wrapper. GVIP looks at the biggest hedge funds and selects the top 10 holdings. If those tend to correlate with other hedge fund managers, they will make their way into the portfolio, Lydon said.

“The great thing here is when you look at the underlying holdings, it looks somewhat like the S&P in the fact that it’s got companies like Google (GOOGL) and Meta Platforms (META), Advanced Micro Devices (AMD), (AMZN). At the same time, it’s got other companies that maybe wouldn’t make the top 10 in the S&P. Mercado Libre (MELI), for example, that is an international company,” Lydon said.

On top of that, GVIP has almost an equal weighting of the underlying holdings, Lydon said. GVIP offers a selection of top holdings from hedge fund managers, but there’s not an overweight toward any individual stock.

“Hedge fund managers are always having the hot hand,” Lydon said. “There might be a couple that do well over a certain period of time. Then the next year, they fall to the bottom. This way, you really get a consensus of some of the best companies by some of the best managers.”

Lydon said it’s important to point out that GVIP does not include a short component, whereas many hedge funds will have short allocations.

How GVIP Fits Into Portfolios

GVIP has posted strong returns when the market does well, but it also doesn’t give as much back when the market does not do well. Lydon pointed to the fund’s approach of using a consensus from hedge fund managers and not overweighting individual positions.

“If you like innovative companies that tend to do well over time, that are bought by consensus. [But] at the same time, your stomach has not felt very good in the last couple of years with all the volatility,” Lydon said. “Here’s a way to maybe participate in a less volatile way. But you still have the diversification and almost equal weighting among the constituents in the index.”

Lydon said many investors allocate too much of their portfolios to the S&P 500, which is largely influenced by the performance of just the top 10 stocks. Investors could be better served by carving out some of their S&P 500 allocation to invest in GVIP, as it is an opportunity to have more diversification among more stocks.

“This also has some mid-cap stocks in there. It’s got some international stocks in there as well,” Lydon said. “So if you look at your portfolio and say, ‘Yeah, I’m really light in those areas. I’m light in the SMid-cap area. I’m light in international.’ This also checks that box. This is something to think about.”

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