Hedge fund trackers shooting the lights out

A pair of funds that track hedge fund filings are performing better than the real McCoys. But what's going to happen when stocks take a dive? Jason Kephart has the story.
OCT 28, 2013
By  JKEPHART
A pair of funds that track hedge fund filings are turning out to be much better at producing alpha than the real McCoys, but questions remain about how they will do if stocks head south. The $117 million Global X Top Holdings ETF (GURU) and the $74.8 million 13D Activist Fund (DDDAX) were both up more than 23% year-to-date through Aug. 21, crushing the S&P 500's 16% return over the same time period. They funds are also pounding the fabled investors that the funds are mimicking. Through the first six months of this year, the most recently available data, the funds were up 19% and 17%, respectively, while the Morningstar MSCI Composite Hedge Fund Index, an asset-weighted composite of almost 1,000 hedge funds, was up just 7.2%. Both the funds base their holdings on hedge fund filings, but each does it a bit differently. The Global X Top Holdings ETF tracks an index that uses a proprietary methodology to select holdings from 63 different hedge fund managers, based on their 13F filings, which hedge funds with more than $100 million in assets are required to file quarterly. The 13D Activist Fund, as its name suggests, is based on 13D filings, which hedge funds have to file when they buy a stake of 5% or more in any publicly traded company. These filings are typically tied to so-called activist investors such as Bill Ackman or Carl Icahn. Even though the funds are tracking hedge fund filings, they aren't doing any hedging themselves. They are both plain-old long-only stock funds. Because neither of the funds are two years old yet, their funds haven't been tested yet in a down market and it is unclear whether relying on hot hedge fund picks will help if stocks start to sag. “When the market takes a dive a lot of people might sell their winners very quickly to take profits,” said Josh Charney, an alternatives analyst at Morningstar Inc. “I'd be concerned if I was doing this on the side and the market takes a dive.” In the funds' defense, even without hedges, they have offered investors a surprising amount of downside protection over the past year. The 13D Activist Fund has only captured 41% of the market's downside over the past year, while capturing 130% of the upside, according to Morningstar. Global X's Guru ETF has captured 76% of the downside and 163% of the upside. The average large-cap mutual fund captured 97% of the downside and just over 100% of the upside. Ken Squire, portfolio manager of the 13D Activist Fund, is confident that the performance can keep up. The average 13D holding period lasts about 15 months, and those stocks have an average return of 15% over that time period, he said. Mr. Squire attributes the success, in part, to the star power of the hedge funders that his fund follows. “They're not only putting capital on the line, they're also putting their reputations on the line,” he said.

Latest News

Powell heads for hot-seat hearings with ongoing pressure from Trump policies
Powell heads for hot-seat hearings with ongoing pressure from Trump policies

The Fed chair is in for some "hyper-charged" meetings, with legislators likely to raise questions on tariff threats and apparent steps to comply with anti-DEI orders.

Revealed: The InvestmentNews Top Advisors for 2025
Revealed: The InvestmentNews Top Advisors for 2025

Driven by long-term vision and a steadfast commitment to client service, the top-ranking advisors are reaching new heights of success.

Trepidation at SEC as Trump workforce overhaul casts shadow on agency
Trepidation at SEC as Trump workforce overhaul casts shadow on agency

While the regulator's lawyers may be exempt, a federal effort to purge workers is causing uncertainty across its broader employee base.

Prime Capital Financial, Carnegie expand Eastern footprints
Prime Capital Financial, Carnegie expand Eastern footprints

The two national RIA firms are bolstering their presence separately in Georgia and Connecticut with new billion-dollar acquisitions.

Embattled TD Bank eyes $14B raise in Schwab stake exit
Embattled TD Bank eyes $14B raise in Schwab stake exit

The banking giant is looking to sell its interest in the online brokerage giant amid the continuing fallout of its historic money-laundering settlement with federal regulators.

SPONSORED Taylor Matthews on what's behind Farther's rapid growth

From 'no clients' to reshaping wealth management, Farther blends tech and trust to deliver family-office experience at scale.

SPONSORED Why wealth advisors should care about the future of federal tax policy

Blue Vault features expert strategies to harness for maximum client advantage.