Hedge Fund Tracking ETFs Lagging S&P

July 08, 2014

1. $85 million AlphaClone Alternative Alpha ETF (ALFA | D-38) YTD Return: 4 percent

Like GURU, ALFA tracks an index that relies on lagged published hedge fund positions in U.S. equities. The fund is typically all long in equities but, unlike GURU, it can add a broad, partial hedge if triggered by a sustained drop in equity prices.

The fund’s index can vary from being 100 percent long to up to 50 percent short if one or more broad-based market indices closes below its respective 200-day moving average at the end of any month.

The ETF’s underlying holdings are equal weighted but have an overlap bias (i.e., securities with twice the number of hedge fund investors have twice the weight).

The fund’s top three holdings currently include:

  • Valeant Pharmaceuticals, up 7.3 percent YTD
  • Micron Technology (semiconductor maker), up 55 percent YTD
  • Constellation Brands (wine, beer maker), up 28.5 percent YTD

ALFA is the most expensive of the three replication strategies, charging 0.95 percent, or $95 for every $10,000, and it’s also more expensive than many indexed ETFs on the market.

But it’s a far cry from the 2/20 fee structure (2 percent management fee and 20 percent incentive fee) that the hedge funds tracked by ALFA charge for their investment prowess.

ALFA_Vs._SPY_YTD_performance

Charts courtesy of StockCharts.com

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