Exchange traded funds can be a great way for investors to get diversified exposure to a sector. Many ETF’s charge a low annual fee, lower than many mutual funds. Many ETFs are also liquid, allowing for a big institution to get in and out of a position easily. In this article, we examine the smart money’s top five favorite ETFs, including SPDR S&P 500 ETF Trust (NYSE:SPY), SPDR Gold Trust (ETF) (NYSE:GLD), Market Vectors Gold Miners ETF (NYSE:GDX), iShares Russell 2000 Index (ETF) (NYSE:IWM), and iShares MSCI Emerging Markets Indx (ETF) (NYSE:EEM).
Given that Insider Monkey has done a lot of research into what the smart money likes and doesn’t like, let’s also analyze relevant hedge fund sentiment toward the stocks. We pay attention to hedge funds’ moves because our research has shown that hedge funds are extremely talented at picking stocks on the long side of their portfolios. It is true that hedge fund investors have been underperforming the market in recent years. However, this was mainly because hedge funds’ short stock picks lost a ton of money during the bull market that started in March 2009. Hedge fund investors also paid an arm and a leg for the services that they received. We have been tracking the performance of hedge funds’ 15 most popular small-cap stock picks in real time since the end of August 2012. These stocks have returned 102% since then and outperformed the S&P 500 Index by around 53 percentage points (see the details here). That’s why we believe it is important to pay attention to hedge fund sentiment; we also don’t like paying huge fees.
#5 iShares MSCI Emerging Markets Indx (ETF) (NYSE:EEM)
– Number of Hedge Fund Holders (as of September 30): 31
– Total Value of Hedge Fund Holdings (as of September 30): $2.8 billion
Given that the billions of people in emerging markets such as India and Indonesia will eventually reach a middle income status and consume all the products developed nations do, many hedge funds are long the iShares MSCI Emerging Markets Indx (ETF) (NYSE:EEM), which gives investors diversified access to over 800 emerging market stocks that will do well when emerging market consumers have more purchasing power. Although shares of the index are down 16.5% as capital heads home due to rising U.S. Treasury yields, the ETF remains a good long term holding given the ETF’s reasonable expense ratio of 0.68% (lower than that of many mutual funds) and EEM’s underlying companies’ growth prospects.
#4 iShares Russell 2000 Index (ETF) (NYSE:IWM)
– Number of Hedge Fund Holders (as of September 30): 32
– Total Value of Hedge Fund Holdings (as of September 30): $960.96 million
Seeing as owning small cap stocks has historically been a good way to beat the market, shares of iShares Russell 2000 Index (ETF) (NYSE:IWM), an ETF that gives investors exposure to 2000 small-cap domestic U.S. companies, will likely be a good long term holding as its index components will grow faster than the S&P 500’s index components. With an expense ratio of 0.2%, the iShares Russell 2000 Index (ETF) (NYSE:IWM) is also one of the lowest-fee ETF’s on the market today. As an added bonus, shares of the IWM also trade for a reasonable 18.67 P/E ratio.
#3 Market Vectors Gold Miners ETF (NYSE:GDX)
– Number of Hedge Fund Holders (as of September 30): 35
– Total Value of Hedge Fund Holdings (as of September 30): $580.37 million
Hedge fund sentiment in Market Vectors Gold Miners ETF (NYSE:GDX), the ETF that seeks to replicate the price and yield performance of the NYSE Arca Gold Miners Index (before fees and expenses), has remained relatively constant. A total of 35 elite funds owned around $580.37 million of GDX shares on September 30. Given that many gold companies have been beaten up and absolutely hated, the Gold Miners ETF has the potential to spike if good news for gold were to occur.
#2 SPDR Gold Trust (ETF) (NYSE:GLD)
– Number of Hedge Fund Holders (as of September 30): 52
– Total Value of Hedge Fund Holdings (as of September 30): $6.46 billion
Although gold prices have been on a downtrend lately as the U.S. raises interest rates and the U.S. dollar rallies, there are still plenty of reasons to own gold. With crude prices so low, geopolitical conflicts are bound to bubble up in the Middle East. If Turkey shoots down another Russian bomber, or if the situation in the South China Sea escalates beyond a war of words, look for gold futures prices to rally. By being the largest gold ETF, SPDR Gold Trust (ETF) (NYSE:GLD) is also one of the best to get gold exposure, as the ETF has a low expense ratio of 0.4%. 52 elite funds owned over $6 billion shares of GLD at the end of the third quarter, with John Paulson‘s Paulson & Co and Wayne Cooperman‘s Cobalt Capital Management among them. First Eagle Investment Management owned 4.71 million shares as of the latest reporting period.
#1 SPDR S&P 500 ETF Trust (NYSE:SPY)
– Number of Hedge Fund Holders (as of September 30): 94
– Total Value of Hedge Fund Holdings (as of September 30): $16.7 billion
The SPDR S&P 500 ETF Trust (NYSE:SPY) seeks to provide investment results closely correlated with the price and yield performance of the S&P 500 index and has one of the lowest annual expense ratios in the industry, with a net expense ratio of 0.0945%. The ETF’s performance has been relatively solid so far, with a 10 year average annual return of over 7.3% and an average annual return of over 9% since the fund started in 1993. Given the strong U.S. economy, the deep bench of domestic intellectual capital, and America’s strong government institutions, look for the ETF to continue to do well over the next few decades. A total of 94 funds from our database owned more than $16 billion worth of SPDR S&P 500 ETF Trust (NYSE:SPY) shares at the end of the third quarter, making SPY the smart money’s top ETF pick. Ray Dalio‘s Bridgewater Associates owned 10.24 million shares at the end of September.
Disclosure:None
