Direxion Planning Hedge Fund Tracking ETF: New Investing Opportunity

It’s a dream for many retail investors to invest like some of the biggest and most influential institutional investors of the likes of George Soros, Carl Icahn and John Paulson, to find the next bunch of outperforming securities. Unfortunately, the hedge fund industry is only accessible to very wealthy investors as these funds generally require hefty minimum investments and also have limits on cash withdrawals.
 
While tracking the 13-F filing from hedge funds is certainly one way to match the performance of these investing legends, tracking an ETF that follows the same strategy is a potentially more convenient way to do so.
 
This idea has been gaining popularity, with Global X having recently launched two more ETFs – Global X Guru Small Cap Index ETF (GURX) and Global X Guru International Index ETF (GURI) – following its success of Global X Guru Index ETF (GURU) in the domestic part of the space.
 
This winning strategy has pressed issuers to come up with more such products particularly given the lackluster performance of the broader market index, the S&P 500, since the start of the year. All star managers can drive stocks higher and following their techniques might be a way to outperform the broader markets.
 
In hoping to tap into this investor interest, fund provider Direxion has come up with a fund of its own in the market. The new product, which Direxion just made a filing for, looks to follow the iBillionaire Index and give investors a new way to tap into hedge fund strategies. We have detailed some of the key points from this filing below for those investors who are looking for a different way to access this intriguing corner of the market:

Direxion iBillionaire Index ETF

As per the SEC filing, the newly filed fund seeks to track the iBillionaire Index, before fees and expenses. The index uses a set of criteria to select its desired billionaire investor and hedge fund manager from a list of 10 and excludes managers having a personal net worth of less than $1 billion and hedge funds with high turnover. Information regarding the billionaire’s holdings is selected from Form 13F filings.
 
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.

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 (ALFA.K), 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.

Bottom Line

The recently filed fund is very similar to products like (GURU.K), 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.

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