Following Your Favorite Gurus

13f’s are rolling out and you have your usual crowd that believes that these filings are useless if you want to ditto their trades due to the fact that you are looking at information that is over 65 days old.  Others believe that 13f’s are useful and actionable if you follow only the managers that have low portfolio turnover and are known to be long term holders.  So, who’s right?  Let’s take a look at two ETF’S that use 13f’s as their source to pick stocks.

$GURU The Solactive Top Guru Holdings Index is comprised of the top U.S. listed equity positions reported on Form 13F by a select group of entities that Structured Solutions AG characterizes as hedge funds. Hedge funds are selected from a pool of thousands of privately offered pooled investment vehicles based on the size of their reported equity holdings and the efficacy of replicating their publicly disclosed positions. Additional filters are applied to eliminate hedge funds that have high turnover rates for equity holdings. Only hedge funds with concentrated top holdings are included in the selection process. Once the hedge fund pool has been determined, the Index Provider utilizes 13F filings to compile the top stock holding from each of these hedge funds. The stocks are screened for liquidity and equal weighted

As you can see in the above chart $GURU since inception is up 50% compared to 29.71% for the SP500, you can also notice that the charts pretty much move hand in hand which is great in a bull market but it also seems like it will follow the SP500 on the way down as well.

$ALFA is a leader in researching managers based on their disclosures and has developed the AlphaClone Hedge Fund Long/Short Index. The index uses AlphaClone’s proprietary “Clone Score” methodology to aggregate on a quarterly basis the ideas of hedge funds for which historically it has made the most sense to follow based on their disclosures. The index also employs a hedge mechanism that allows the index to vary from being long only to market hedged.  the index can vary between being long only and market hedged (50% short exposure to the S&P 500 index using an inverse unleveraged ETF). The hedge is triggered on or off when the S&P 500 crosses its 200 day moving average at any month end.

Its unanimous, since inception both $GURU and $ALFA have outperformed the $SPY, and based on $ALFA’S description it looks like they would probably outperform the SP500 in a bear market.

Could these ETF’S replace the funds of funds?  Can we start one that follows the stock ideas that billionaires are now announcing on twitter like Carl Ichan and Bill Ackman?

(Form 13F is required to be filed within 45 days of the end of a calendar quarter. The Form 13F report requires disclosure of the name of the institutional investment manager that files the report, and, with respect to each section 13(f) security over which it exercises investment discretion, the name and class, the CUSIP number, the number of shares as of the end of the calendar quarter for which the report is filed, and the total market value.)

The information in this blog post represents my own opinions and does not contain a recommendation for any particular security or investment. I or my affiliates may hold positions or other interests in securities mentioned in the Blog, please see my Disclaimer page for my full disclaimer.

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