Get ready for some new ETFs to hit the marketplace thanks to ETF-issuers Global X and First Trust. Between the two, five new hedge strategies be available on Securities and Exchange 13 F quarterly holdings reports from firms.
According to FIN alternatives, Global X Funds has the ambitious plan to introduce four new ETFs. The news initially arrived last month.
In a rare interview with Harvard Business School that was published online earlier this month, (it has since been taken down) value investor Seth Klarman spoke at length about his investment process, philosophy and the changes value investors have had to overcome during the past decade. Klarman’s hedge fund, the Boston-based Baupost has one of Read More
Three of the offerings will invest in hedge fund holdings from 13Fs. Two will target activist and hedge fund managers. They’ll be named the Top Activist Investor Holdings ETF (based on holdings by top activist hedge funds) and Top Value Guru Holdings ETF (based on top value managers); they will rely on benchmarks created by Structured Solutions.
Global X also plans to introduce a fund tracking the holdings of the world’s largest hedge funds with its fourth new fund investing in listed hedge funds, also constructed from a Structured Solutions index.
Entering the hedge fund space in the near future as well, First Trust will start small and launch an ETF tracking the Wells Fargo index; this will encompass the most-widely held 100 stocks held by hedge funds as identified in the 13F filings. They trade on both the Nasdaq and the New York Stock Exchange.
Global X and First Trust have filed the necessary paperwork with the SEC for the new funds.
They will join the space already occupied by ProShares Hedge Replication ETF and the IndexIQ Hedge Multi-Strategy Tracker.
What’s interesting about the hedge fund ETFs is that the SEC allows retail investors to purchase them as well as inverse ETNs. Many of these investors get int trouble with them as they don’t understand the esoteric products and panic when trading them as they begin to sell off.
A recent example was last month’s tanking of the TVIX. Due to a flaw with the product, it dropped 30% on a day it was supposed to be up!
For investors to participate in hedge funds, they have to be designated as qualified investors. Who’s to say the SEC isn’t missing out on some potential unsuitable investment cases for retail investors with the ETN ETFS? If the SEC cracks down for one, it should consider cracking down for the other product.
Additionally, 13-Fs lack so much information on actual hedge fund holdings. As an example, Seth Klarman’s Baupost Group, reports about $3 billion of stock in its quarterly releases. However, the hedge fund has $24 billion of assets under management. Debt, foreign stock, illiquid assets like real estate, and many other investments do not have to be disclosed with the SEC.
We urge investors to stay clear, and urge the SEC starts to crack down on these products.
(Assets under management were incorrectly cited as $10billion for Baupost Group, the number has been amended to the correct number, $24 billion)