Hedge Fund Exposure Via ETFs

Not only has the health care sector been the best performer in the S&P 500 index, rising 8.3% year-to-date through May 15, but it was also the most actively purchased sector by the ten largest hedge funds, according to recent research from S&P Capital IQ’s Pavle Sabic, Director Market Development.

S&P Capital IQ analyzes the latest quarterly 13F filings to determine the ten largest hedge funds, managing $202 billion in assets, seeking out what stocks and sectors have been most in and out favor. For some this is an opportunity to see what the “smart money” has been buying and selling. The top bought sector in the first quarter of 2015 for the 10 hedge funds is health care with net buys totaling $4.8 billion, equal to the next four largest sectors combined.

In the eight quarters in running the research, S&P Capital IQ has never seen a company simultaneously rank as a top buy and a top sell in a quarter, according to S&P Capital IQ hedge-fund tracker research. Yet, Valeant Pharmaceuticals (VRX) broke new ground with the $3.7 billion in purchases and $1.4 billion in sells. Bill Ackman’s Pershing Square Management, the eighth-largest hedge fund manager, was the front runner in the Valeant share buying, with more than 19 million shares bought during the quarter. Meanwhile, Lone Pine Capital and Viking Global Investors were among the firms selling VRX.

Staying in health care, pharmaceutical company Actavis (ACT) was the second- largest overall addition to these hedge funds with $2.6 billion of buys, with two of the top-10 hedge funds establishing new positions.

While some investors may want to use this analysis to spot companies that are in and out of favor by hedge fund managers, others may want the benefits and liquidity that ETFs provide.

Global X Guru ETF (GURU), with $300 million in assets, is one of the various ways individuals can invest in stocks held by hedge funds. The ETF comprises the top U.S. listed equity positions reported on Form 13F by a select group of hedge funds that the index provider Solactive deems as having moderate turnover rates and concentrated holdings. There are 42 holdings that included a recent 2.4% stake in ACT.

Another ETF that seeks to track activities of the hedge funds is AlphaClone Alternative Alpha (ALFA), which launched in 2012 and has approximately $150 million in assets. AlphaClone uses a proprietary “Clone Score” methodology to aggregate on a quarterly basis the ideas of hedge funds for which historically it has made the most sense to follow based on their disclosures. AlphaClone’s clone score for each manager is based on the monthly returns in excess of a broad market index and a fixed hurdle rate exhibited by the manager’s follow strategies over time. Apple, which is held by Icahn Capital and other hedge fund managers, is the largest position.

Read Pavle Sabic’s full Hedge Fund Tracker report.

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