Ken Fisher

Fisher Asset Management is a money management firm founded by billionaire hedge fund manager Ken Fisher. The firm manages more than $60 billion in assets and is one of the most influential investment companies in the world. Besides being a great fund manager, Ken Fisher has also written a number of financial books and is one of the longest continuously running columnists for Forbes. Ken Fisher recently said that he thinks the current S&P bull market may yet run longer, as there is still healthy skepticism about the fundamentals of the market. Fisher holds the view that bull markets end in investor euphoria and this is in short supply at the moment, as the Brexit, anti-globalization sentiment, and Chinese debt worries keep investors on their toes.

Fisher Asset Management holds hundreds of stocks in its public equity portfolio and further diversifies that portfolio through both equity and bond ETFs, most of which have been performing quite well over the last year. In this article we’ll take a look at the five ETFs which the billionaire manager had the most money invested in as of September 30.

Through extensive research that covered the portfolios of several hundred large investors between 1999 and 2012, we determined that following the small-cap stocks that large money managers are collectively bullish on, can generate monthly returns nearly 1.0 percentage points above the market (see the details).

Ken Fisher - FISHER ASSET MANAGEMENT

Financial Select Sector SPDR Fund (NYSEARCA:XLF)

– Shares Owned by Fisher Asset Management (as of September 30): 1.77 Million
– Value of Fisher Asset Management’s Holding (as of September 30): $34.19 Million

The Financial Select Sector SPDR Fund (NYSEARCA:XLF) tracks the performance of the Financial Select Sector Index. With a gross expense ratio of just 0.14% the fund has an expected EPS growth estimate of 7% over the next five years. The fund has a total asset base of $12.5 billion, having Berkshire Hathaway Inc (NYSE:BRK.A), JPMorgan Chase & Co (NYSE:JPM), Wells Fargo & Co (NYSE:WFC), and Bank of America Corp (NYSE:BAC) as its top holdings. The banking sector occupies almost 42% of its portfolio, while stocks of companies in the insurance and capital markets constitute almost 20% each. The fund has a dividend yield of 2.63%.

Though the financial sector has been a strong performing one this year, it has not been reflected in the ETF’s performance, which has fallen by almost 17% this year. Financial Select Sector SPDR Fund (NYSEARCA:XLF)’s share price fell heavily last month owing to a special dividend paid in lieu of removing real estate investment trusts from its portfolio. The ETF should benefit from the expected increase in interest rates in the near future.

Fisher Asset Management hiked its stake in the ETF by 3% during the third quarter, while in the second quarter, the value of hedge funds’ holdings in the ETF increased by 24% to $205 million as of June 30.

Ken Fisher
Ken Fisher
Fisher Asset Management

SPDR Barclays Capital High Yield Bnd ETF (NYSEARCA:JNK)

– Shares Owned by Fisher Asset Management (as of September 30): 1.04 Million
– Value of Fisher Asset Management’s Holding (as of September 30): $38.26 Million

The SPDR Barclays Capital High Yield Bnd ETF (NYSEARCA:JNK) has returned almost 8% year-to-date and has assets worth more than $12 billion, with the corporate industrial sector as its top sector, constituting 88% of the portfolio. With an average coupon rate of 6.4% and average maturity of 6.2 years, the fund corresponds to the price and yield performance of the Barclays High Yield Very Liquid Index. The fund is comprised of high-yielding, dollar denominated corporate bonds with above-average liquidity. The gross expense ratio is relatively high at 0.4% since there is a higher risk of default involved. According to Dick Bove, the VP at Rafferty Capital, the demand for junk is going up exponentially. It provides a good way for investors to play speculation, though the interest in bonds could fall after the expected hike in interest rates later this year or early next year.

Nonetheless, Fisher Asset Management raised its stake in the SPDR Barclays Capital High Yield Bnd ETF (NYSEARCA:JNK) by 142% during the third quarter. On the other hand, the ETF was held by just seven of the hedge funds in our database at the end of June, down from 11 a quarter earlier. The value of their collective holdings in the ETF also declined to $76 million from $109 million during the quarter.

We’ll check out Fisher’s three favorite ETFs on the next page.

iShares MSCI Taiwan Index (ETF) (NYSEARCA:EWT)

– Shares Owned by Fisher Asset Management (as of September 30): 10.38 Million
– Value of Fisher Asset Management’s Holding (as of September 30): $163 Million

The iShares MSCI Taiwan Index (ETF) (NYSEARCA:EWT) follows the performance of the MSCI Taiwan IndexSM. This ETF focuses on capturing 85% of the total market capitalization value of the Taiwanese equity market. The ETF is up by 24% year-to-date and has total assets of $2.7 billion. Taiwan is one of the least volatile markets in Southeast Asia, as its economy is mainly based on high technology and remains immune to the vagaries of commodity prices which have rocked other Asian countries like Indonesia.

Thus, it is not surprising that the iShares MSCI Taiwan Index (ETF) (NYSEARCA:EWT) has 57% allocation towards the technology sector, given the large number of leading global technology companies based on this island. Taiwan is a leader in the production of LCDs, solar cells, semiconductors, and other electronics products. The largest holding in the ETF is Taiwan Semiconductor Mfg. Co. Ltd. (ADR) (NYSE:TSM), with nearly 25% weight. Taiwan Semiconductor has been an extraordinary performer over the last few years and become the biggest semiconductor foundry maker in the world, almost single-handedly changing the entire electronics industry by pioneering the fabless business model.

While the value of holdings in the ETF among the hedge funds in our database appreciated by 91% to $365 million during the second quarter, the number of funds invested in it actually declined to six on June 30 from nine on March 31. Fisher Asset Management kept its stake largely unchanged during the third quarter, trimming it by 1%.

SPDR Nuveen Barclays Capital Municpl Bnd ETF (NYSEARCA:TFI)

– Shares Owned by Fisher Asset Management (as of September 30): 4.83 Million
– Value of Fisher Asset Management’s Holding (as of September 30): $241.84 Million

The SPDR Nuveen Barclays Capital Municpl Bnd ETF (NYSEARCA:TFI) follows the performance of the Barclays Capital Municipal Managed Money Index, which tracks the US long-term, tax-exempt bond market. These bonds are relatively safe, as they can be considered quasi-government securities. Municipal bonds are generally preferred because of their tax-free status and low default rates. The performance of the ETF has struggled recently, but holds 1% gains this year, as investors look to invest in higher-yielding yet safe securities. The ETF has a low net expense ratio of just 0.23% and an average coupon rate of 4.8% along with an average maturity of 13.6 years. California, New York and Texas are the top states in the portfolio, accounting for more than 49% of its value. Fisher Asset Management sold off 2% of its position in the SPDR Nuveen Barclays Capital Municpl Bnd ETF (NYSEARCA:TFI) during the third quarter.

SPDR Barclays Cptl Shrt Term Corp Bd ETF (NYSEARCA:SCPB)

– Shares Owned by Fisher Asset Management (as of September 30): 19 Million
– Value of Fisher Asset Management’s Holding (as of September 30): $584.60 Million

Lastly is the SPDR Barclays Cptl Shrt Term Corp Bd ETF (NYSEARCA:SCPB), which follows the Barclays Capital US 1-3 Year Corporate Bond Index that tracks the United States’ short-term corporate bond market. Corporate bonds have been doing well in the current low-interest-rate environment, as fixed income investors look for government bond alternatives which give a decent yield. As interest rates are expected to remain in a low range, this ETF should continue to perform well. The fund has an average coupon rate of 3.6% and average maturity of 1.9 years, with a gross expense ratio of just 0.12%. The largest exposure this ETF has is to the corporate industrial sector, with 51% weighting, closely followed by the corporate finance sector, which constitutes 42%.

The number of funds that we track with a position in this ETF increased by one to four in the June quarter, while the value of their holdings increased by 7% to $570 million quarter-over-quarter. Fisher Asset Management raised its stake in the SPDR Barclays Cptl Shrt Term Corp Bd ETF (NYSEARCA:SCPB) by 3% during the third quarter.

Disclosure: None