A Brand-New Me-Too Strategy
Catching Up on Global X Guru ETF
The New iBillionaire Index
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There’s a new strategy with a new index coming along, called iBillionaire. It’s based on a new index that tracks the NYSE stock holdings of 10 prominent billionaires.
But it’s not just an index; there’s a website, a dedicated iPhone app, and a new ETF forthcoming.
The invest-like-Buffett (and others) concept may sound hokey, but I think it’s worth a close look. Another version of a me-too strategy has been working quite well so far. So first, let’s review some recent history in me-too investing.
In September, I wrote here about an ETF called Global X Guru Index ETF (GURU) (click here to re-read it). The fund is pretty new (not quite a year and a half since its June 2012 inception), but it’s showing real promise in its young life.
The ETF was up 36% for 12 months at that September writing, compared with 17% for the S&P. It showed consistently positive alpha, so it was also ahead on a risk-adjusted basis.
The premise of the Guru fund is that it pays to mirror the major stockholdings of top hedge fund managers. The fund is technically “indexed,” but in fact the index is a compilation of the most concentrated holdings among major hedge funds. So the index composition changes when the hedge fund holdings change, and the result is not quite so “passive” as other index strategies.
[My September writing also mentioned—with reservations—a second me-too ETF called AlphaClone Alternative Alpha ETF (ALFA). Although the two ETFs are similar in basic approach, the AlphaClone fund has a couple of cost and risk disadvantages.]
The Guru fund continues to do well. It’s up 8.4% in the two months since that September writing, while the S&P 500 is up 5.5%. A little of the extra return (about ½ of 1%) can be attributed to higher volatility, but mostly the advantage is due to plain old stock picking.
Of course, the “picking” is being done by the index composition, but the point is that GURU’s me-too strategy is still working. And it’s a pretty small fund ($235 million), so there’s lots of “room to run” before it gets too big to keep performing.
So far, the Guru fund has been a good pick.
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Now there’s a new entrant in the “me-too” or “copycat” investing arena. But instead of tracking hedge fund positions, the iBillionaire Index (BILLION) tracks the holdings of 10 prominent billionaire investors.
The 10 investors are familiar household names (familiar in my household, anyway); Warren Buffett, Carl Icahn, David Tepper, Leon Cooperman, Daniel Loeb, John Paulson, Jorge Lemann, Chase Coleman, David Einhorn and Steve Mandel.
The index creator (Intercontinental Exchange) has compiled the B-index (my nickname) retroactively over eight years. Over that time, the index has gained an average of 12.2% per year, while the S&P 500 has averaged 4.7%.
For this year to date (2013), the B-index is up 34.7% compared with 26.1% for the S&P.
We don’t yet have fine-grained index data to compare risk and volatility, but those are impressive numbers. And given that the rules governing the index only allow large-cap S&P candidates, it would be unlikely to find that volatility adjustments would affect the returns very much.
What could go wrong?
It’s worth noting is that all the portfolio “tracking” is done via 13-F filings with the SEC. The 13-Fs are filed quarterly, and can be filed up to 45 days after a quarter’s close. So the billionaire portfolio information may sometimes be stale. This danger seems to me limited, however, as large holdings among billionaires are not generally subject to erratic changes.
Also worth remembering is that even billionaires make mistakes.
And even the big successes can take years to work out. But overall, the historical (back-tested) record is quite attractive.
The iBillionaire website shows a range of data on individual stocks in the index, and performance info on individual billionaires. (www.ibillionaire.me) There’s an iPhone app to receive B-info regularly if you like, and there’s an ETF planned. That new ETF is certainly worth watching … and I’m thinking it will be worth backing with a modest trial investment.
Sincerely,
Robin Carpenter
Chief Analyst, Cabot ETF Investing System