From the August 2012 issue of Research Magazine • Subscribe!

July 26, 2012

Following Hedge Honchos

If you’re having trouble tracking all of the handpicked investments from top hedge fund managers, a pair of ETFs will do it for you.

Global X Funds, a New York, NY-based ETF manager, unveiled the Global X Top Guru Holdings Index ETF (GURU). GURU attempts to mimic the holdings of hedge funds with the “highest conviction ideas.”

The fund follows a proprietary index called the “Top Guru Holdings Index,” which combs through investment holdings from a select pool of hedge funds where the 13F information is most valuable. Hedge funds with high turnover and non-concentrated positions are eliminated from the pool.

Currently, the new fund holds 51 stocks. The largest industry sectors represented are technology (21.57%), financials (17.05%) and industrials (15.09%). GURU charges annual expenses of 0.75% and rebalances its holdings quarterly.

Another newly launched fund, the AlphaClone Alternative Alpha ETF (ALFA), also tracks hedge fund strategies.

ALFA is linked to the AlphaClone Hedge Fund Long/Short Index, which benchmarks the performance of US-traded equity securities to which hedge funds and institutional investors have disclosed significant exposure.

Among the fund’s goals is to capture alpha from these managers’ long positions while protecting against protracted market downturns through a dynamic hedge mechanism. The indexing methodology developed by AlphaClone ranks hedge funds and institutional investors based on the efficacy of replicating their publicity disclosed positions. Equities are selected from those managers with the highest ranking, or “Clone Score.”

The index also incorporates a rules-based hedging strategy that adjusts holdings between being long only and market hedged based on certain technical price targets for a broad index of U.S. equities. ALFA’s underlying index is reconstituted quarterly and can vary between being long only and market neutral (up to 50% short exposure using inverse unleveraged exchange-traded funds).

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