Using this strategy, 30 U.S. small cap and large cap stocks included in the Index are based on the companies with the highest allocations across the portfolios of the 10 billionaires that meet the criteria chosen by the Index provider (read: 7 ETFs to Buy in 2014).
Is this a new technique?
Though the recently filed ETF is looking to follow the footsteps of the existing products in this space and gives investors new ways to track the portfolios of hedge funds and billionaires, there are some differences.
Both GURU and a similar product from AlphaClone, (NYSEARCA:ALFA), hold a larger basket of stocks as compared to the recently filed product. While GURU holds a basket of 54 stocks tracking the Solactive Top Guru Holdings Index, ALFA holds 86 stocks and tracks the AlphaClone Hedge Fund Long/Short Index.
Moreover, while ALFA selects the managers’ top holdings and equally weights them, both GURU and iBillionaire Index ETF look for highly concentrated portfolios managed by hedge funds and invest in only their top picks.
Also, though both ALFA and GURU seek to invest primarily in U.S. stocks, still they have around 10% international exposure. However, as per the filing, the iBillionaire Index ETF seeks to invest only in U.S. stocks.
Furthermore, the recently filed fund is cheaper as compared to the existing products in this space. While Direxion looks to charge 65 basis points as fees, GURU charges 75 basis points and ALFA is the costliest in the space with 95 basis points as fees.
Though iBillionaire Index ETF has not yet decided on the sector allocation of its assets, Technology, Consumer Cyclical and Financials are the top three sectors which both ALFA and GURU focus on.
The recently filed fund is very similar to products like GURU, ALFA and GURX and as such might face competition from them. However, with increasing popularity and demand for these types of products in the market, iBillionaire Index ETF might as well attract investor interest and build a sizable asset base.
Moreover, it is the cheapest among all existing funds looking to invest like hedge funds, giving this fund an added advantage over the competition.
This article is brought to you courtesy of Eric Dutram.