Stock Picker Copycat ETFs Show Dispersion

June 25, 2015

When it comes to replicating what hedge fund money is doing in an ETF wrapper, investors have an increasing number of so-called copycat funds that are built around the same principle—buy what famous stock pickers are buying. However, they deliver very different results.


As the Wall Street Journal reports that hedge fund managers are having a good year so far in 2015 in their quest to outperform the broad market, it’s quickly evident that no two hedge-fund copycat ETFs are built the same way, nor are they delivering the same returns to investors.


That’s because they go about making stock selections differently, and end up serving up portfolios that comprise totally different securities, and even more different sector exposures.


Consider these four ETFs as a sample of the funds in this segment:


Year-to-date, the dispersion between the best-performing of the bunch and the worst is a sizable 8.43 percentage points, as the chart below shows. Investors here could be practically flat year-to-date, or up about 8.5 percent. For context, the broad market as measured by the SPDR S&P 500 (SPY | A-98) is up about 3.5 percent in the same period. 


Chart courtesy of


“They’re copycat ETFs, and they look primarily at holdings, but they differ from each other from there in terms of various screens for selection, such as manager quality, ‘stickiness’ of holdings; and weighting,” Paul Britt, ETF analyst at FactSet told “It’s OK to lump the copycats together in terms of concept, but differences in execution matter greatly.”


Looking Under The Hood

Here is a look at some of these key differences:

  • ALFA, the top performer of the bunch, tracks an index that also aims to outperform the broad market by mimicking hedge funds’ positions in U.S. equities, and it, too, relies on lagging public filings. The fund, however, can hedge a drop in equities by going short—something GURU can’t do.


The source of its impressive outperformance so far this year relative to the other three funds rests on its keen stock selection and sector tilts. ALFA’s holdings are topped by a 7.3 percent allocation to Apple—a company that’s up about 17 percent year-to-date.


Valeant Pharmaceuticals, Horizon Pharma, Celgene and Biogen round out the top five, which together represent nearly 25 percent of the overall 83-holdings portfolio. In general, ALFA has picked better stocks so far this year than GURU has, Britt says.



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