What are the most popular ETFs? Exchange-traded funds provide liquid ways for investors, including billionaire hedge fund managers, to take large positions in macro and other investment themes. Along with general equities, hedge funds and other major investors are required to disclose their holdings of many ETFs in quarterly 13F filings. We track 13Fs as part of our work developing investment strategies; for example, we have found that the most popular small cap stocks among hedge funds generate an average excess return of 18 percentage points per year and our portfolio based on this strategy outperformed the market by 33 percentage points in the last 11 months. Learn more about our small cap strategy. Our database can also be used to see which ETFs are the most widely owned among these hedge funds and other notable investors. Excluding general U.S. index funds such as the S&P 500 and Russell 2000 ETFs, here are the five most popular exchange-traded funds among the filers we track:
57 funds in our database reported a long position in the SPDR Gold Trust (ETF) (NYSEARCA:GLD), one of the most liquid gold ETFs. For some time many fund managers- as well as many finance bloggers- have been convinced that the Federal Reserve’s expansionary monetary policy would prove extremely bullish for gold. While the SPDR Gold Trust (ETF) (NYSEARCA:GLD) is still up strongly from its levels five years ago, it has fallen more than 15% year to date. Gold has been a major money loser for billionaire John Paulson’s Paulson & Co., which still had over $1.2 billion invested in the ETF at the end of June (find Paulson’s favorite stocks).
After a big gap, the next most popular ETF on our list is the iShares MSCI Emerging Markets Indx (ETF) (NYSEARCA:EEM). Emerging markets tend to offer higher returns but a higher risk than U.S. equities, and also serve as a way for fund managers to diversify their portfolio away from exposure to the U.S. economy in normal times. Year to date, the ETF has fallen 13% against a rising market due to a number of factors including the possibility that the Fed will tighten up its monetary policy and therefore cut off much of the liquidity which has benefitted emerging markets indices.
29 of the filers we track reported a position in the Select Sector Financial Slct Str SPDR Fd (NYSEARCA:XLF). The four megabanks- which have all been recording strong results recently, and are fairly cheap in terms of forward earnings estimates- and Berkshire Hathaway make up nearly 40% of this ETF’s holdings. The sector has led the market slightly so far this year, though we would be a bit concerned about how dependent large banks might be on low interest rates. On average, the ETF’s holdings are trading at a small premium to book with a P/B ratio of 1.1.
The Market Vectors Gold Miners ETF (NYSEARCA:GDX) also made our list of hedge funds’ favorite ETFs. The thesis here had generally been that gold miners were lagging gold during the period that the commodity was rising, and that over time high prices should provide excellent returns for the miners on their investments. Investors also did not want to take the company-specific risk of buying individual gold miners which might be exposed to a small number of projects. The gold miners ETF is down more than 40% year to date, however, as falling gold prices have savaged profits for now at most miners.
Finishing off our list is the WisdomTree Japan Hedged Equity Fund (NYSEARCA:DXJ). This ETF is “hedged” in that it goes long Japanese equities but attempts to prevent fluctuations in the yen-dollar exchange rate from impacting returns. This ETF is up 49% in the last year, easily beating the S&P 500’s return and also about 20 percentage points ahead of the iShares MSCI Japan ETF, which presumably is not hedged in this manner. The bull case for Japanese stocks is that a cheaper yen, possibly helped by economic reforms, will be a boon for exports and for the company’s manufacturing sector in general.
Disclosure: I own no shares of any stocks mentioned in this article.
