Bonds, Currencies, Emerging Markets, Funds / ETFs, Stocks

How ETFs Passed Hedge Funds In Assets

ETF ETFs 2By , Zacks Equity Research

At the end of the second quarter this year, assets in global exchange traded products surpassed those of hedge funds.  It was a major milestone for the ETF industry which is just about 25 years old while hedge funds have been around for more than 66 years.

According to London based ETF consulting firm ETFGI, assets in global ETF industry totaled US$2.971 trillion at the end of Q2 2015, while assets in the global hedge fund industry, were US$2.969 trillion.

Reasons for the surging popularity of ETFs are not difficult to understand. Most ETFs are low-cost, transparent and tax-efficient products that track the performance of an index.

Most ETFs charge fees less than 0.5% with many charging less than 0.1% per annum. On the other hand, hedge funds use a variety of strategies–mostly complicated. They aim to beat the market and thus charge a much higher fees, usually an annual charge of 2% or so and a performance fee of 15-20%

But most investors have been disappointed with hedge funds’ performance in recent years as the broader hedge fund index has significantly underperformed the S&P 500 Index. This year, performance of the hedge fund index is slightly better than the S&P 500 index.

On the other hand. stocks and ETFs tracking stocks have delivered phenomenal retunes over the past more than six years and low cost ETFs tracking broader stock market indexes like SPDR S&P 500 ETF (SPYETF report) and Vanguard S&P 500 ETF (VOOETF report) have become extremely popular.

And for investors that are interested in hedge funds, there are some ETFs that borrow the best stock ideas from hedge funds by looking at their quarterly 13 F filings and have beaten the broader hedge fund industry in performance. We have discussed two such ETFs–Global X Top Guru Holdings Index ETF (GURUETF report) and AlphaClone Alternative Alpha ETF (ALFAETF report) in the short video below:


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