Mom and pop investors hoping to emulate the investment savvy of Wall Street's wealthiest like Warren Buffett and Carl Icahn will have a new way into markets on Friday when the latest low-cost exchange-traded fund tracking the stock picks of big name investors begins trading.
The Direxion iBillionaire ETF, set to trade under the ticker "IBLN," is the latest in a handful of similar ETFs that have come to market in recent years, all packaging the holdings disclosed quarterly by top managers into instruments that are more accessible to Main Street investors.
"It democratizes a lot of the information that very wealthy institutional investors have had for a long time," said Brian Jacobs, president of Direxion Investments, the ETF provider that has partnered with index creator iBillionaire.
At $65 for every $10,000 invested, fees for the new iBillionaire ETF are far lower than the $200 that would be charged by the typical billionaire-run hedge fund, which would also tack on performance fees.
To be sure, the iBillionaire ETF, like the similar Global X Guru ETF launched in 2012, focuses only on the long portion of these billionaire portfolios and does not include day-to-day active management or any shorting of stocks. Furthermore, the practicalities of pulling investment ideas from the quarterly reports filed by these large investors means that the investment ideas often lag by at least 45 days.
The new ETF is based on an index created in November by startup firm iBillionaire. The fund and its underlying index include the 30 top U.S. companies in which a pool of selected billionaire investors have invested the most assets, based on the so-called 13F disclosures the investors must file quarterly with the U.S. Securities and Exchange commission. Top holdings in the index right now include Apple Inc, Micron Technology and Priceline Group Inc, with about a third of its portfolio in technology stocks.
"Billionaires are more bullish on technology" right now, said Raul Moreno, chief executive officer and co-founder of iBillionaire. "You can see that by their allocation and their strategies."
The ETF is similar to the GURU ETF and AlphaClone Alternative Alpha ETF, which both launched in 2012. While they had both beat the benchmark S&P 500 index with stellar performances in 2013, they have been more lackluster this year, with GURU up 0.6 percent and ALFA up 0.3 percent, compared to the S&P 500, up 4.5 percent through Thursday's close.
So far, these funds have a niche following - The GURU ETF has amassed about $499 million in assets, while the ALFA ETF has amassed $79 million in assets. So the billionaires being copied need not worry about losing clients to them, said Ben Johnson, an analyst with research firm Morningstar.
"I don't think they're losing any sleep over this at the moment," he said.
(Reporting by Ashley Lau in New York; Additional reporting by Michael Leibel; editing by Linda Stern, Bernard Orr)