As the popularity of Exchange Traded Funds has grown with investors, so have the options investors have when it comes to the type and style of ETF they want to own. Not only can an ETF investor buy specific asset class ETFs, but they can buy ETFs designed by specific investors.
Just like how different asset classes have different risks, different investors have different beliefs about what makes a good stock. Each investor, professional or retail, has different metrics they look at, have different investment timeframes, have different investment goals, and just approach the market and investing in a different manner. These differences often make one investor successful while another fail. Following alongside well known, successful investors can help teach you what works and perhaps what you have been missing in the past.
So even if you decide not to buy an ETF that is based on your favorite investor, at least take a look at it, you may learn something. With that in mind, let’s take a look at a few ETFs I have found that track the pro’s, and see what we can learn.
The first two I want to point out is the Motley Fool 100 Index ETF (TMFC) and the Innovator IBD 50 ETF (FFTY). The first is the Motley Fool’s ETF which tracks 100 of the Motley Fools recommended stocks. We all know the Motley Fool has some stock picking services, this ETF is made up of those picks. So, while you may not want to pay for their monthly stock picks, you could get a piece of their analyst’s knowledge by simply owning this ETF.
The FFTY is the Investor Business Daily’s ETF which tracks 50 US-listed stocks with aggressive growth characteristics based on Investor Business Daily’s signature investing tool. FFTY’s success has lead IBD to add its second ETF, the Innovator IBD ETF Leaders ETF (LDRS), which is a fund of funds, or an ETF that attempts to pick the top-performing ETFs and hold those.
Perhaps the newsletter investing is not intriguing to you, what about owning the same stocks like the big Hedge Funds? Well, that what the Goldman Sachs Hedge Industry VIP ETF (GVIP) tries to do. GVIP owns 50 stocks most commonly owned by hedge funds. And it’s not the only one, the Global X Guru Index ETF (GURU) buys shares of companies based on the public filings of large hedge funds. The AlphaClone Alternative Alpha ETF (ALFA) does the same thing as GURU, mimics US equity positions owned by hedge funds.
Big Name Investors
Another route you can take is buying an ETF that is based on the investing style of big-name investors like T. Boone Pickens or Shark Tank’s Kevin O’Leary. The NYSE Pickens Oil Response ETF (BOON) buys US large-cap companies that have a high correlation to the price of Brent crude oil, which is considered a more modern way to obtain exposure to the energy sector. The BOON ETF tracks the performance of the NYSE Pickens Oil Response Index, which is based on years of research and is crafted in the same spirit as the T. Boone Pickens plan for American Energy, otherwise known as the Pickens Plan.
Kevin O’Leary’s actually has some ETFs which are based on his investing beliefs that high-quality companies, which have low volatility and are dividend payers, are the best stocks to own. The O’Shares FTSE US Quality Dividend ETF (OUSA) picks stocks based on just that theory. But, the other O’Leary ETFs all mainly focus on quality dividend paying stocks.
Lastly, we have the insider ETFs. These are the ETFs that buy stocks in companies who have recent insider buying and or high insider ownership. The Direxion All Cap Insider Sentiment Shares ETF (KNOW) and the PowerShares Insider Sentiment Portfolio ETF (NFO) both own up to 100 U.S. equities which have seen high insider buying based on recent Security and Exchange Commission filings. The idea is that insiders have the best knowledge about a company and if they believe shares are worth buying, it is a good sign that the stock is currently undervalued.
As I mentioned before, following and investing alongside the professionals may not be ‘your cup of tea,’ but regardless it is worth knowing what the ‘smart money’ as they say in Las Vegas is doing. At the very least you may learn something new or be exposed to a different way of investing and picking stocks, which will only make you a better investor in the long run.
On the other side of that coin, if you are investing with the pros, just remember that sometimes, in the case of the head funds, they most likely aren’t investing their own money. Therefore, they may be riskier than you with what they buy and sell. Also, as with Kevin O’Leary, they may not be risky enough, since he only buys dividend-paying stocks. These are just a few things to think about before putting all your eggs in one or two baskets.
Disclosure: This contributor hold any of the ETFs mentioned at the time this blog post was published. This article is the opinion of the contributor themselves. The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. This contributor is not receiving compensation (other than from INO.com) for their opinion.