Most people remember the movie Moneyball from a few years back. It was the story of baseball player and owner Billie Beane, who is unable to afford the star hires of his big-spending rivals, so decides to take a less traditional route to athletic success. Beane disdains the conventional wisdom about what makes a player valuable, and has a passion for neglected statistics that reveal how runs are really scored. He decides to form his player roster based on statistics rather than hype.

Well, what if there was an ETF that used a similar strategy, culling only the most statistically successful money managers’ stock picks and eschewing the hype?

The AlphaClone Alternative Alpha ETF (ALFA) could be that fund.

The AlphaClone Hedge Fund Masters Index tracks the performance of US-traded equity securities to which hedge funds and institutional investors have disclosed significant exposure. The proprietary index methodology developed by AlphaClone ranks hedge funds and institutional investors based on the efficacy of replicating their publicly disclosed positions. Equities are selected from those managers with the highest ranking, or “Clone Score”. The fund seeks to track the price and yield, before fees and expenses, of the AlphaClone Hedge Fund Masters Index.

AlphaClone’s website explains how, “Most investors can’t conveniently access established hedge funds and the alpha potential from their investment ideas. However, hedge funds managing $100 million or more must disclose their US publicly traded equity holdings on a form called 13F-HR which is filed quarterly and made available to the public. AlphaClone is a leader in researching managers based on their disclosures and has developed the AlphaClone Hedge Fund Masters Index. The index uses AlphaClone’s 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.”

Of the roughly 6100 funds in the hedge fund universe, 500 funds are filtered for size, length of filing history and
investment approach. What this essentially means is that the stocks the fund picks will be based on real holdings of successful managers, not based on the news or the latest trend. In this way, AlphaClone separates itself from the pack, attempting to create real value for its investors.

The AlphaClone Hedge Fund Masters index then selects 13F-HR filings from ten managers twice annually from which it then constructs its portfolio. Index constituents are rebalanced quarterly and comprise the 5 largest
disclosed holdings by quarter end market value from each manager’s 13F-HR filing. The expense ratio for the ETF is set at 65 basis points, and investments come from a wide swath of sectors including healthcare, technology, growth, and distressed stocks.

AlphaClone ETF’s from SmarkLabs on Vimeo.

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