by Carla Lake | August 7, 2013 12:13 pm
Cullen Roche of Pragmatic Capital recently joined the fray[1] in investigating Global X Top Guru Holdings (GURU[2]). It’s supposedly a “smart-money” ETF[3] that invests in hedge funds’ top holdings reported in their 13F reports — and it has returned a stunning 56% since the fund went public last year.
Here’s what Roche had to say:
“I actually looked at the holdings and decided to compare the fund to what it currently holds — mostly mid-caps and 10% Europe with the rest in domestic equities. The fund’s lifetime is brief, but its performance is huge. It’s generated a 56% return in just 13 months with a standard deviation of 8.8 and a Sharpe ratio of 3.61. The mid-cap/Europe combo is up 40% with a standard deviation of 8.8 and Sharpe ratio of 2.6. The drawdowns are slightly in favor of the mid-cap/Europe combo though not by much.
I don’t know what to think here. The fund is really interesting. But it doesn’t have a long track record and I am still suspicious that we’re just looking at a beta junky fund here. In other words, is it just a suped up (sic) mid-cap fund that will get crushed when the market goes through the next big bear market?”
My two cents: It very well might be.
Granted, I’m new to the game, but when apparently any idiot[4] can come up with a trendy concept and have the luck to do well for a while, remember that they can always lean on this little bit of legalese: “Past performance is not indicative of future results.”
Before chasing after an interesting idea like GURU or similar fund AlphaClone Alternative Alpha ETF (ALFA[5]), it pays to go back to the basics[6].
Solid returns aside, I would agree that there’s just not enough track record, and point out that the fund’s market-beating 28% gain this year, while impressive, has come alongside a market itself that has boomed nearly 20% in the first seven months of the year.
Even if the strategy of chasing 13F holdings proves to be sustainable, I would sit on this idea until it shows it can weather a storm.
As of this writing, Carla Lake did not hold a position in any of the aforementioned securities.
Source URL: https://investorplace.com/2013/08/why-follow-guru-if-you-dont-know-where-its-going/
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