When it comes to investing, it’s often hard to beat the market by picking a portfolio of individual investments, which is why everyday investors often choose index funds or ETFs. Lately, ETFs have gained more popularity due to several reasons, including lower fees, exposure to a larger basket of investments and the fact that they are traded like stocks, which allows to sell or buy them quickly or even short them. Smart money investors also like to buy shares of ETFs and in this article we are going to look at five ETFs that ranked as the most popular among some 800 funds from our database as of the end of last year. Surprisingly, despite the market volatility, the funds in our database opted to invest less in a gold ETF and turned their attention to a high-yield bonds ETF.
Another strategy that can help a retail investor to beat the market is our small-cap strategy, which can generate returns around 1.0 points above the market per month (see more details here). Through extensive research, we determined that one of the best ways to emulate hedge funds is to follow them into their 15 most popular small-cap stocks.
With the drop in oil prices, many investors cut their exposure to oil stocks. However, they opted to invest in oil-related ETFs, one of which is SPDR S&P Oil & Gas Explore & Prod. (ETF) (NYSEARCA:XOP), which ranks as the fifth most-popular ETF among the funds we track. XOP provides exposure to Oil & Gas Exploration and Production companies and tracks the S&P Oil & Gas Exploration & Production Select Industry Index. Among the funds we track, the number of investors with shares of SPDR S&P Oil & Gas Explore & Prod. (ETF) (NYSEARCA:XOP) went up to 34 from 24 during the fourth quarter of 2015, while the total value of their positions jumped to $789.29 million from $252.68 million. Over the last year, XOP has lost 39% amid a slid in oil prices. XOP has $1.96 billion in assets, sports a yield of 2.71% and has around two-thirds invested in small- and medium-cap companies. Brian Taylor‘s Pine River Capital Management holds 3.36 million shares of SPDR S&P Oil & Gas Explore & Prod. (ETF) (NYSEARCA:XOP), as well as ‘Put’ options underlying 3.90 million shares.
An ETF that saw a boost in popularity among the investors in our database is iShares iBoxx $ High Yid Corp Bond (ETF) (NYSEARCA:HYG). During the last three months of 2015, the number of funds bullish on HYG surged by 23 to 35, while the aggregate value of holdings appreciated to $1.60 billion from $764.85 million. HYG tracks the performance of the Markit iBoxx USD Liquid High Yield Index, which consists of liquid US dollar-denominated high-yield corporate bonds. Generally, investing in high-yield bonds is risky, which is why many investors prefer to buy ETFs that offer diversification across different high-yield bonds. iShares iBoxx $ High Yid Corp Bond (ETF) (NYSEARCA:HYG) is down by more than 9% over the last year and it has around $16 billion in assets. In addition, it sports a 12-month yield of 6.05% and its largest shares are represented by ‘B’ and ‘BB’ quality bonds. Among the funds in our database, Ken Fisher’s Fisher Asset Management owns 2.39 million shares of iShares iBoxx $ High Yid Corp Bond (ETF) (NYSEARCA:HYG).
On the other hand, smart money investors were dumping SPDR Gold Trust (ETF) (NYSEARCA:GLD) during the last three months of 2015, which is another sign that investors may be confident in the equity markets. At the end of December, 35 funds among those we track held shares of SPDR Gold Trust (ETF) (NYSEARCA:GLD), versus 52 funds a quarter earlier, while the total value of their positions slid to $4.74 billion from $6.46 billion. However, over the last 12 months, GLD has climbed by almost 7% amid an overall market decline and fears of further turmoil. Since the beginning of 2015, the concern among investors intensified and GLD has gained over 18%. After the ECB announced more stimulus, the US dollar declined, while the euro soared, which might also push GLD further in the near-term. At this point, with the current uncertainty Gold is expected to rally, but, again, if the Fed decides to raise interest rates and signs of inflation appear on the horizon, SPDR Gold Trust (ETF) (NYSEARCA:GLD) could be under pressure. Among the funds we track, John Paulson‘s Paulson & Co owns 5.78 million shares of GLD, while Stanley Druckenmiller’s Duquesne Capital holds ‘Call’ options underlying 2.88 million shares.
Many funds from our database also prefer to have some exposure to the small-cap space and the iShares Russell 2000 Index (ETF) (NYSEARCA:IWM) saw a jump in popularity during the fourth quarter, with the number of funds long IWM having grown to 43 from 32. Consequently, the aggregate value of their positions surged to $1.59 billion from $960.96 million, amid a 4% growth registered by the ETF. Nevertheless, over the last 52 weeks, IWM took a hit and is down by more than 10%. Generally, small-cap stocks are considered a benchmark for the US economy and analysts expect iShares Russell 2000 Index (ETF) (NYSEARCA:IWM) to underperform SPY at least until more certainty regarding the state of the economy. Meanwhile, among the investors that own shares of IWM is Michael Novogratz’s Fortress Investment Group, which owns 4.0 million shares. In addition, Jeff Smith’s Starboard Value owns ‘Put’ options underlying 9.70 million shares of iShares Russell 2000 Index (ETF) (NYSEARCA:IWM).
Finally, Similar to the past several quarters, the most popular ETF at the end of December was SPDR S&P 500 ETF Trust (NYSEARCA:SPY). The number of funds long the ETF that tracks the S&P 500 Index remained unchanged at 94 during the last quarter, while the aggregate value of investors’ holdings surged to $26.23 billion from $16.70 billion a quarter earlier. The growth in the aggregate value comes amid a 7% growth registered by the ETF during the fourth quarter of 2015. Among the funds long SPDR S&P 500 ETF Trust (NYSEARCA:SPY) are Ray Dalio‘s Bridgewater Associates and Eric Sprott’s Sprott Asset Management, which hold 10.51 million shares and 8.74 million shares as of the end of 2015, respectively. In addition, it’s important to mention that many investors own ‘Call’ and ‘Put’ options underlying shares of SPY, probably for hedging. For example, billionaire Ken Griffin’s Citadel Advisors owns ‘Put’ options underlying 23.37 million SPY shares and ‘Call’ options underlying 14.59 million shares. Lately, the performance of the S&P 500 and, consequently SPDR S&P 500 ETF Trust (NYSEARCA:SPY), were tied to oil prices, even though the correlation has been weakening. Nevertheless, crude prices seem to be stabilizing and earlier this week the ECB announced more stimulus in the euro zone, which involves expanding the QE program and cutting the interest rate to 0 from 0.05, although it also suggested that it won’t undertake any further reductions in the interest rates. This suggests that the seven-year bull run touched by the S&P 500 a couple of days ago is likely to continue. Now the eyes will be on the Fed and its decision regarding the key interest rate.
Disclosure: none
