Did you know you can invest like a hedge fund bigwig with just a few bucks?
The Copy The Experts ETF (GURU) tracks the positions of large hedge funds by looking at their published holdings. With a focus on U.S.-listed securities, Copy The Experts piggybacks on the picks of accomplished stock-pickers and gives them all equal weighting. These holdings change on a quarterly basis after hedge funds release their reports**.
You can see the current holdings at any time by visiting the fund website.
Wait, what’s a hedge fund?
A hedge fund is a group of investors that pool their money together to invest. Unlike some investors that try to simply match the market’s performance over time, hedge funds try to beat the market.
Hedge funds are elite institutions, open only to accredited investors making more than 200k for at least the two previous years or who have a net worth of a cool $1 million… not including their home.
They often require a steep buy-in with a lengthy lockup period — once you put in the cash, you can’t touch it for a while, maybe 6 months or more. That means that you need to be an individual with a lot of extra cash to get in the game, or be an institutional investor (someone who makes the investing decisions for a pension fund or an insurance company).
Hedge funds don’t have to follow some of the SEC rules that are put in place to protect investors, which might sound like a license to do anything they want.
But before you go jumping to conclusions, there are three things you need to know:
- Hedge funds are often registered investment advisers at the state or federal level.
- Hedge fund managers are subject to the same anti-fraud laws as other investors.
- They owe a fiduciary duty to their clients (and the money they manage for those clients). That means they are required to put their clients’ interests first.
Recommended Reading: What the Fiduciary? A Guide To Your New Favorite F-Word
What does a hedge fund do?
Some investors try to match the performance of the market over time. Hedge funds try to beat it. If the market is down, they try to earn a positive return. If the market is up, they try to beat its performance and earn an even greater return.
That extra return, the kind that’s above and beyond how the market is performing, is called alpha. When you hear that word, think alpha dog — the one that’s always trying to “one up” everyone else in the pack.
In order to earn alpha, they sometimes employ leverage. That means they invest with borrowed money to make larger investments. Hedge funds invest in all types of assets – they add more than just stocks and bonds to their portfolios — think real estate, land, commodities, derivatives, and more.
Hedge funds go big or go home. Because of that, they charge both a management fee and a performance fee… usually “2 and 20” – a 2% management fee plus a 20% cut of any profits gained. Savage!
Hedge funds also try to minimize risk by providing a hedge against an unknown future. That’s actually where hedge funds get their name. A hedge is a strategic investment that helps limit or offset risk from another investment. It’s kind of like insurance.
Hedging IRL: you purchase homeowner’s insurance to limit the risk that you would wipe out your entire savings if your house burns down. ? ? Your homeowner’s insurance is a hedge against your other investment… your house.
In the world of hedge funds, research is extensive, industry contacts run deep, and risks can sometimes be high. But with great risk comes the potential for great reward. Just ask John Paulson, Michael Burry, or some of the other hedge fund managers who bet against subprime mortgages in 2007 and profited billions*. #TheBigShort
Are you a risk-taker with a spare million or more lying around? If so, you might want to look at investing in a hedge fund. If you’d like to copy the hedge fund strategy without the high price tag, then you might want to try ‘Copy the Experts’ instead.
Recommended Reading: Exposure and Holdings: Double the Jargon, Double the Fun!
Although the expense ratio is a bit higher at 0.75% than some other funds, Copy The Experts has a lower price tag than the hedge fund approach it mimics. Without the extensive research and analysis that those top hedge funds undertake, this fund seeks to mimic their successful strategies by copying their picks.