Hedge funds spend loads of money and time trying to find great trade ideas. On a quarterly basis hedge funds (over $100 million) are required to reveal their positions--and thus what they are most interested in--to the public. Until recently poring through all those hedge funds positions likely wouldn't have been of much use. It took as much time to go through the data as it did to do some personal research. A series of "guru" ETFs is changing that. The ETFs invest in stocks which are being accumulated by hedge funds, using filters and proprietary methods to supposedly find the best of the best. The idea behind of the funds is to give everyday investors a way to make hedge fund-like returns, hopefully.
The Global X Guru Index ETF (ARCA:GURU) is comprised of U.S. listed securities and has a 0.75% expense ratio. Over the last year GURU is up 24.24%, versus the S&P 500 SPDR (ARCA:SPY) which is up 18.69%. The holdings within the ETF are stocks which the fund believes hedge funds are accumulating based on hedge fund position disclosures. Top holdings currently include Nationstar Mortgage Holdings (NYSE:NSM) and American Airlines (Nasdaq:AAL). The ETF has moderate volume, averaging more than 210,000 shares per day.
Another fund in the guru series is Global X Guru Small Cap Index ETF (ARCA:GURX), focusing on small cap U.S. listed securities which the ETF believes hold the highest conviction with hedge funds. It has an expense ratio of 0.75% and began trading on March 11 2014, so historical performance is limited. Since inception, the fund is up 0%, compared to the iShares Russell 2000 ETF (ARCA:IWM)--which focuses on small caps--which is down 1.18% over the same time period. Volume is still very light in this new fund, averaging about 4,700 shares per day. This may make it difficult to enter or exit large positions, and therefore it is not suitable for short-term trading. If the volume deters you, top holdings in the fund include Vanda Pharmaceuticals (Nasdaq:VNDA) and Halozyme Therapeutics (Nasdaq:HALO); both are actively traded and in short-term uptrends.
The Global X Guru International Index ETF (ARCA:GURI) acquires U.S. listed international stocks that the ETF views as being held in high regard by hedge funds. This fund also has limited historical performance, as it began trading on March 11, 2014. The expense ratio is 0.75%. Since inception the fund is up 4.42%. Volume is still very light in this new fund, averaging about 1,600 shares per day. This may make it difficult to enter or exit large positions, and therefore it is not suitable for short-term trading. Top holdings in the ETF include Canadian Pacific Railway (NYSE:CP) and Baidu (Nasdaq:BIDU); both are actively traded and in uptrends.
The Bottom Line
These funds actively seek out stocks which hedge funds are accumulating and holding. The GURX and GURI funds still lack volume, therefore simply looking at the ETF holdings provides insight into which stocks hedge funds are accumulating. The GURU ETF is better established and has higher volume. Invest in the fund if you are a passive investor who wants to (hopefully) benefit from the insight and trading activity of top hedge funds. Active traders can take a peak inside the fund's holdings too see which stocks are likely to outperform based on hedge fund buying. Unfortunately, just because a hedge fund purchased a stock in the past--they only report quarterly--doesn't mean that stocks or these ETFs itself will continue to rise in the future.
Current holdings provided by Morningstar.