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Do ETFs Following Gurus/Insiders Work?

December 1, 2020 • Posted in Buybacks-Secondaries, Investing Expertise

Do exchange-traded funds (ETF) that attempt to mimic holdings of hedge fund gurus and/or firm insiders offer attractive performance? To investigate, we consider seven ETFs, four live and three dead, in order of introduction:

    • Invesco Insider Sentiment (NFO) – focuses on stocks attracting interest of insiders such as company executives, fund managers and sell side analysts. This fund is dead as of February 2020.
    • Invesco BuyBack Achievers (PKW) – tracks the Nasdaq US BuyBack Achievers Index, comprised of stocks of U.S. firms with a net decline in shares outstanding of 5% or more in the last 12 months.
    • Direxion All Cap Insider Sentiment (KNOW) –  tracks the S&P Composite 1500 Executive Activity & Analyst Estimate Index, comprised of U.S. stocks that have favorable analyst ratings and are being acquired by firm insiders (top management, directors and large institutions). This fund is dead as of October 2020.
    • AlphaClone Alternative Alpha – (ALFA) – tracks the proprietary AlphaClone Hedge Fund Masters Index, comprised of U.S. securities held by the highest ranked managers of  hedge funds and institutions.
    • Global X Guru Index (GURU) – tracks the Solactive Guru Index, comprised of the highest conviction ideas from a select pool of hedge funds.
    • Direxion iBillionaire (IBLN) –  tracks the proprietary iBillionaire Index, comprised of 30 U.S. mid and large cap securities. This fund is dead as of April 2018.
    • Goldman Sachs Hedge Industry VIP (GVIP) – tracks the proprietary GS Hedge Fund VIP Index, comprised of stocks appearing most frequently among the top 10 equity holdings of fundamentally driven hedge fund managers.

We use SPDR S&P 500 (SPY) as a simple benchmark for all these ETFs. We focus on monthly return statistics, along with compound annual growth rates (CAGR) and maximum drawdowns (MaxDD). Using monthly returns for the above guru/insider-following ETFs and SPY as available through October 2020, we find that: (more…)

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