Hedge fund titans George Soros, Ray Dalio and David Tepper embrace ETFs

Dec 5th, 2012 | By | Category: Alternatives / Multi-Asset

Hedge funds spend millions on talent and research to uncover attractive investment opportunities. You might assume, therefore, that their holdings are obscure, inconspicuous and inaccessible to everyday investors.

Hedge fund titans George Soros, Ray Dalio and David Tepper embrace exchange-traded funds (ETFs)

Hedge fund titans such as George Soros (pictured), Ray Dalio and David Tepper have embraced exchange-traded funds.

Not so. Analysis of hedge fund holdings reveals that low-cost exchange-traded funds (ETFs) are among hedge funds’ largest holdings. These are funds that anyone of us could buy.

On a quarterly basis, hedge funds with more than $100 million under management are required to report their holdings to the Securities and Exchange Commission (SEC) via a publicly available document called Form 13F.

Analysis of this document shows that some of the hedge fund industry’s biggest stars are major investors in ETFs; well-known names such as George Soros, Ray Dalio and David Tepper have all embraced ETFs.

Let’s start with Soros. During the third quarter, Soros Fund Management, the fund he founded, added to its investment in the SPDR Gold Shares ETF (GLD), the world’s largest gold ETF. According to the latest SEC filing, the firm boosted its stake in GLD to 1.3 million shares, equivalent to about $214 million at last night’s close.

The filing also shows that Soros Fund Management increased its holdings in a pair of gold miner ETFs sponsored by Van Eck. The filing indicates that the fund holds 2.32 million shares of the Market Vectors Gold Miners ETF (GDX) and nearly 2.4 million shares of the Market Vectors Junior Gold Miners ETF (GDXJ). Combined these positions are worth $159 million.

Other ETFs held by the Soros fund include the SPDR S&P Metals and Mining ETF (XME), the Materials Select Sector SPDR ETF (XLB), the Consumer Staples Select Sector SPDR ETF (XLP), the SPDR S&P Bank ETF (KBE), the iShares MSCI Emerging Markets Index ETF (EEM), the iShares FTSE China 25 Index ETF (FXI), and the giant SPDR S&P 500 ETF (SPY).

Soros’ rival, Ray Dalio, who manages Bridgewater Associates, the world’s largest hedge fund, is also active in ETFs. Over the third quarter he topped up stakes in two widely-held emerging markets funds, namely the Vanguard MSCI Emerging Markets ETF (VWO) (which will soon be transitioning to the FTSE Emerging Markets Index) and the iShares MSCI Emerging Market ETF (EEM). Bridgewater Associates’ holdings in these two funds now stand at 49.3 million and  33 million shares respectively, worth a cool $3.5 billion combined.

Like Soros, Dalio also has a significant position in the SPDR S&P 500 ETF (SPY), to which a further 18.2 million shares were added over the past three months. Together, these three ETFs accounted for Dalio’s largest purchases in the third quarter.

Dalio also carried out a few smaller trades, including a moderate trimming of its stake in the iShares MSCI Brazil Index ETF (EWZ) and a (relatively) small addition to its holding in iShares iBoxx $ Investment Grade Corporate Bond ETF (LQD). With almost 357,000 shares, LQD is the fund’s sixth-largest position, worth about $43 million.

David Tepper, who runs the Appaloosa Management hedge fund, is also a big player in the ETF game. In fact his fund’s largest holding is an ETF tracking the Nasdaq 100 Index, the PowerShares QQQ ETF (QQQ). Despite trimming its holding in the third-quarter, Appaloosa holds 6,449,182 shares of QQQ, worth about $423 million and equivalent to 11.0% of the total fund.

While all the funds mentioned above are listed on US exchanges (NYSE and Nasdaq), virtually all of them have UK and European-listed equivalents.

For example, a good London-listed alternative to SPDR Gold Shares ETF (GLD) is the ETFS Physical Gold ETC (PHAU) from ETF Securities. Similarly, an alternative to the Market Vectors gold mining funds is the iShares S&P Commodity Producers Gold ETF (SPGP). For US sector ETFs, Source offers a comprehensive line-up.

For broad S&P 500 exposure, the super-cheap synthetic UBS-ETF S&P 500 (UC41), which charges just 0.05% pa, is the cheapest, followed by the physical Vanguard S&P 500 (VUSA) at 0.09%. For emerging markets Deutsche Bank’s db X-trackers offers the fullest range, though the Lyxor ETF MSCI Emerging Markets (LEML) is one of the most competitive when it comes to price.

For investment grade bonds, the iShares Markit iBoxx $ Corporate Bond ETF (LQDE) does the same as LQD held by Dalio’s Bridgewater Associates. And for those looking to mimic Tepper and build a position in the Nasdaq 100, the UK has its very own version of QQQ, the PowerShares EQQQ ETF (EQQQ). Incidentally, there’s a slightly cheaper ETF tracking this index, offered by Amundi, which is also worth a look.

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