Who’s Buying What ETF?

August 09, 2016

Looking at brokers, it’s unsurprising to see both some of the most liquid—and most speculative—ETFs on the market. ETFs serve a slightly different purpose here, allowing for short-term positions in narrow sectors of the market.

 

What about the “smart” money—hedge funds? With the caveat that not every hedge fund has to disclose its holdings, there are still a few interesting tidbits.

 

Hedge funds are looking further afield than the average wealth manager, with big positions in gold, gold miners, high-yield bond funds and even China, all absent from the top 10 list of advisors. That’s not to say that advisors don’t own, say, the SPDR GLD Trust (GLD)—they just own it further down in their portfolios than the average hedge fund.

It’s also the case that since we’re just looking at ETFs, we’re not capturing how ETFs compare to the other exposures inside hedge funds. Hedge funds are far more likely to be getting market exposure from individual stocks or derivatives, so what we’re seeing is a concentration on areas where it’s difficult for most firms to get exposure directly without an ETF: emerging markets, junk bonds and physical gold. 

The Point (And I Do Have One)

While it’s fun to take a peek under the covers of different investor groups and compare them to how our own money is invested, I think the broader lesson here is simple: All ETFs are not created equal. Different kinds of investors have very different needs. Where a trader needs liquidity, a long-term asset allocator will focus on total costs and tax efficiency.

The beauty of the ETF wrapper is that there’s something for everyone.

As of this writing, the author held no positions in the securities mentioned. Dave Nadig is director of exchange-traded funds at FactSet. You can reach him at [email protected], or on Twitter @DaveNadig.

 

 

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