Can an equal-weighted large-cap ETF make you invest like a billionaire?
In early August, Direxion Shares launched the Direxion iBillionaire Index ETF (IBLN), which aims to track the investments of billionaire money managers such as Warren Buffet and George Soros.
The name is a bit over the top, but it does serve a purpose, which is to help the fund gather assets. In about two months, the fund has grown to a promising $37 million. Aside from that, the iBillionaire ETF's respectable returns indicate this fund may be more than thickly-laid marketing.
iBillionaire's concept of imitating the smart guys isn't new. A number of similar funds are already on the market, including the Global X Guru ETF (GURU | B-57) and the AlphaClone Alternative Alpha ETF (ALFA | D-42), both of which strive to mimic the holdings of large and well-known hedge funds. iBillionaire tends to hold larger companies, which might explain why its returns so far a better than those of its two competitors.
In ETF.com's ETF Finder we classify these funds under "copycat" in the niche category. While all three ETFs have this model of imitation in common, the iBillionaire Index separates itself from the other two in its marketing, and that's worth looking at more closely.
Bloggers Take Note
The index is sold with a Take-No-Prisoners 'invest like a billionaire' pitch. The front page, past the disclaimer, says "Meet the Billionaires" and has a yearbook-like grid of iconic faces and names, ordered not in alphabetical order, but by net worth.
The index has its own app, so that fund-holders can follow the positions of these billionaires. The appeal of the whole theme is immediately accessible, and you can see how bloggers might want to write about this fund.
Where The Rubber Meets The Road
Beyond marketing, what exactly is this iBillionaire Index all about?
To begin, the universe of companies chosen to be included is determined by narrowing the field of billionaire investors down to 10 or less using a set of criteria, such as recent investment success, along with holding a portfolio that is varied and stable enough that the index can attempt to meaningfully follow their investments.
Once the field of billionaires is determined, the index examines each of their "13F" regulatory filings for positions held in U.S. equities of $1 billion market cap or larger. Among those companies, the 30 with the highest aggregate allocation among the chosen billionaire portfolios are selected for the index, and then evenly weighted in the portfolio.
The resulting portfolio is hardly a surprise, consisting of almost entirely U.S. large-caps companies, and in that vein, has a beta of 1.10 when compared to the S&P 500 Index. The index's equal weighting tilts it smaller than the S&P 500, contributing to its slightly higher beta.
When IBLN is compared to its competitors in the "copycat" space, ALFA and GURU, the differences in composition are summarized easiest by this table:
Market Cap ($B)