Another New ETF Targets ‘Smart Money’

by Kyle Woodley | June 11, 2012 12:43 pm

How explosive is the growth in exchange-traded funds tracking hedge fund buys? Well, in the past week, we’re looking at a doubler.

That’s because Global X unveiled the Top Guru Holdings Index ETF (NYSE:GURU[1]), becoming the second fund to pick the world’s best investment minds[2] through the recent disclosures of hedge funds. It’s joining the recent-born AlphaClone Alternative Alpha ETF (NYSE:ALFA[3]) in this category.

GURU tracks the Top Guru Holdings Index, which uses its own special blend of herbs and spices to select the best holdings based on positions recently disclosed in hedge funds’ 13F documents. For quality control, the index excludes hedge funds with high turnover and ignores non-concentrated positions.

The final result: A fund carrying a group of stocks the “smart money” collectively thinks is best. And at first blush, some real winners are definitely among GURU’s current top holdings, such as Apple (NASDAQ:AAPL[4]), Microsoft (NASDAQ:MSFT[5]) and Cisco (NASDAQ:CSCO[6]).

Global X points out that rather than paying hedge funds, which “typically charge a 2% management fee and a 20% performance fee” and are really available only to a limited number of investors, the GURU ETF essentially is available to all, has no minimum investment (past the price of one unit, that is) and comes at a much cheaper 0.75% expense ratio.

All well and good, but the issue with GURU is much the same as the issue I previously pointed out with ALFA[7]: lag. You see, these 13F filings disclose what positions a fund has initiated, left, etc., within the previous quarter. Which means you might be buying into something that looked like a good value a couple months ago, but not once GURU catches up.

Not to mention, funds have 45 days to file a 13F (and many take the full 45 days), meaning you have up to another month-and-a-half of built-in delay. So keep that in mind.

Also launching last week was the STREAM S&P Dynamic Roll Global Commodities Fund (NYSE:BNPC[8]), which tracks the changes (positive or negative) in the level of the S&P GSCI Dynamic Roll Excess Return Index. The fund is meant as a way to give investors access to a broad range of commodities, including crude oil, corn, copper and cattle.

The index touts a “dynamic rolling strategy” meant to maximize yield from rolling long futures contracts in backwardated markets while limiting the effects of contango. BNPC charges 0.78% in fees.

Including June’s two first launches, the U.S. exchange-traded market has seen 115 new funds come to market in 2012, according to XTF.com[9]. The previous week saw the birth of ALFA, as well as a covered-bond ETF[10].

Kyle Woodley[11] is the assistant editor of InvestorPlace.com[12]. As of this writing, he did not hold a position in any of the aforementioned securities. Follow him on Twitter at @KyleWoodley[13].

Endnotes:
  1. GURU: http://studio-5.financialcontent.com/investplace/quote?Symbol=GURU
  2. pick the world’s best investment minds: http://investorplace.com/2012/06/new-bond-etf-has-you-covered-cobo/
  3. ALFA: http://studio-5.financialcontent.com/investplace/quote?Symbol=ALFA
  4. AAPL: http://studio-5.financialcontent.com/investplace/quote?Symbol=AAPL
  5. MSFT: http://studio-5.financialcontent.com/investplace/quote?Symbol=MSFT
  6. CSCO: http://studio-5.financialcontent.com/investplace/quote?Symbol=CSCO
  7. I previously pointed out with ALFA: http://investorplace.com/2012/06/the-troubling-evolution-of-exchange-traded-products/2/
  8. BNPC: http://studio-5.financialcontent.com/investplace/quote?Symbol=BNPC
  9. XTF.com: http://www.xtf.com/
  10. covered-bond ETF: http://investorplace.com/2012/06/new-bond-etf-has-you-covered-cobo/
  11. Kyle Woodley: http://investorplace.com/author/kyle-woodley/
  12. InvestorPlace.com: http://investorplace.com/
  13. @KyleWoodley: https://twitter.com/#%21/kylewoodley

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