Hedge Funds Are Piling Into These Five ETFs

Exchange-Traded Funds have become an extremely popular asset class among retail investors over the past decade. Not only do they take spare investors from the trouble of finding individual stocks that can outperform the market, but the lower fees they charge compared to actively managed funds ensures that investors get more bang for their buck. Although at Insider Monkey we mostly focus on hedge funds and their stock picks, of late, as ETFs have gotten more and more popular among hedge funds, we have also started tracking hedge fund investments in ETFs. Having said that, in this post, we will take a look at five ETFs, whose shares hedge funds tracked by us were buying in droves heading into the second quarter.

We track prominent investors and hedge funds because our research has shown that historically their stock picks delivered superior risk-adjusted returns. This is especially true in the small-cap space. The 15 most popular small-cap stocks among a select group of investors delivered a monthly alpha of 80 basis points between 1999 and 2012 (see the details here).

#5. iShares FTSE/Xinhua China 25 Index (ETF) (NYSEARCA:FXI)

– Investors with long positions as of March 31: 15

– Aggregate value of investors’ holdings as of March 31: $7.62 Million

The heavy decline that Chinese equities have seen since last year would have spooked a lot of investors, but not hedge funds, who were betting on a reversal in Chinese stocks during the second quarter. Their most preferred investment vehicle to do so was the iShares FTSE/Xinhua China 25 Index (ETF) (NYSEARCA:FXI), which seeks to track the investment results of an index composed of large-cap Chinese stocks that trade on the Hong Kong Stock Exchange. During the first quarter, the number of investors tracked by us with long positions in iShares FTSE/Xinhua China 25 Index (ETF) (NYSEARCA:FXI) increased by 10. Though the aggregate value of their holdings in it declined by $1.29 billion during that period, it can be partially attributed to the 4.3% decline in the ETF’s shares in the first quarter. As of March 31, the iShares FTSE/Xinhua China 25 Index (ETF) had an expense ratio of 0.74% and its top holdings included China Mobile Ltd and Tencent Holding Ltd.