There is no doubt that innovation has taken charge of the ETF industry lately. Be it socially conscious funds, forensic accounting funds or an investment in the Women in Leadership index, issuers are broadening their views and employing unusual strategies while launching new products.
The new Direxion ETF – the Direxion iBillionaire Index ETF (NYSEARCA:IBLN) – hit the market on August 1, 2014 (read: Bet on This Top-Ranked Large-Cap Growth ETF).
IBLN in Focus
The ETF looks to track the iBillionaire Index. This benchmark intends to reflect the performance of 30 U.S. large-cap stocks. The index uses a set of criteria to select its desired billionaire investor from a list of 10.
Information regarding the billionaire’s holdings is selected from Form 13F filings. All 30 stocks that the index zeroes in on are nothing but the ones where those billionaire investors invest their money the most.
Some of the top companies in this index include Apple (AAPL), Micron Technology (MU), Priceline Com Inc (PCLN), 21st Century Fox (FOXA) and Dollar Gen Corp. (DG). The top 10 holdings account for about 33.3% of total assets. The index follows an equal-weighted approach and does not carry company-specific concentration risk.
The index is dominated by the Technology sector which accounts for roughly 33% of assets. Consumer discretionary and energy take the next two positions at around 17% of exposure. Financials also get double-digit allocation of 10% at the index.
This novel exposure is not very expensive either, as the fund looks to charge investors 65 basis points a year in fees. Investors should note that the return of the index outperformed the S&P 500 this year.
How Does it Fit in a Portfolio?
This ETF is built for investors who are seeking above-average market returns irrespective of broader market conditions. With the U.S. economy gaining steam and the technology sector turning around after a prolonged downturn, investors may very well want to make the most of this resurgence. For them, this ETF could be an excellent and cost efficient way to carry out the technique on a large scale (read: 4 Great Reasons to Buy These Top Ranked Tech ETFs).
Can it Succeed?
Theme wise, this product is pretty unusual in the market right now. Only a handful of products can give IBLN a run for money. Among those, Global X Guru Holdings Index ETF (GURU) seems to be the top choice.
The fund targets the hedge fund replication market, giving investors exposure to a broad range of hedge fund managers by replicating the 13F filing. Within two years of business, GURU has become a $500-million fund. GURU charges 75 bps in fees and concentrates on multi-cap stocks.
Another ETF namely AlphaClone Alternative Alpha ETF (ALFA) revolves around this hedge fund technique. Investors should note that the fund has the ability to employ a dynamic hedge so that the benchmark can either be 100% long or as much as 50% long and 50% short, depending on market conditions. ALFA charges an expense ratio of 95 bps.
Yet another product Global X Guru Small Cap Index ETF (GURX) operates on similar fundamentals tracking the price movement of small cap U.S. equity holdings of a select group of institutional investors based on quarterly regulatory filings from the SEC. However, like GURU, GURX too charges 75 bps in fees and concentrates on small caps unlike IBLN.
Thus, the newly launched ETF might succeed if it promotes its expense ratio and capitalization level. Along with many other analysts, we believe these two factors can help accumulate assets in an increasingly crowded ETF marketplace.
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