13F ETFs Are Coming! Stay Away!!

For many years I have been saying that the ETF industry will continue to offer products that offer exposures that were not previously available to retail investors. Some of these will be very useful like, IMO, foreign bond exposure. Not as useful will be a category that is popping up that targets 13f filings of various hedge funds and endowment funds.

The 13fs are very useful for trying to learn about thought process, investment process, portfolio construction and possibly other strategy concepts that can help with becoming a more knowledgeable investor. That all sounds pretty good. What doesn’t sound as good is that 13f are reported with a lag and similar to traditional mutual funds there is no way to know what your favorite investing luminary owns right now unless you find an fresh interview offering candor of current trades/positions.

If fund providers are going to offer these funds then there must be some compelling results somewhere but it still boils down to the funds investing on stale information and the possibility that some manager who was big on some theme may have done a 180 on the concept and sold out completely with fantastic timing right before the theme goes death star while the 13f fund could still be heavy as the theme implodes.

Something I probably should have said more often in the past is that I think it makes more sense to devise strategies and implement portfolios using plain vanilla baskets of stocks as opposed to ETPs that have a lot going on under the hood (the context here is exposures where you decide a fund is better than an individual issue). Going 100% plain vanilla might be difficult (we have used SDS in the past and that is not plain vanilla) but going mostly plain vanilla is easy to do and removes additional variables that can cause some sort of malfunction in the fund like the recent news made from the VelocityShares 2x Daily VIX ETN (TVIX).

About Roger Nusbaum 169 Articles

Roger Nusbaum is an Arizona-based financial advisor who builds and manages client portfolios using a mix of individual stocks and ETFs. Roger writes a popular blog, which focuses on risk management, foreign stocks, exchange traded funds, options etc.

Roger has been recognized by many in the investment management industry for his expertise in portfolio management. Roger has been regularly interviewed by the financial press, trade journals, and television news shows. He has also had numerous technical articles published and has been quoted in a number of professional trade journals, newspapers, and consumer finance magazines. He appears frequently on CNBC Asia as a market commentator.

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