Global X Funds has found success with its Guru ETF (GURU), raking in $360 million in assets by tapping into the stock picks of investing icons. It tried last year to extend the franchise with the launch of international and small-cap Guru ETFs, to very limited marketing success—less than $5 million in assets combined.
So of course the ETF company is at it again, launching the Global X Guru Activist Index ETF (ACTX) this week.
The ETF includes 50 of the top equity holdings that are targets of major activist investors, which it finds by using the publicly available information contained in 13F and 13D filings, the same technique behind the original Guru ETF. (For the record, it could also just watch the activists yelling and screaming about cozy C-suites on CNBC and probably get the same portfolio cobbled together.)
Anyway, now you can hitch your stock-market wagon to high-level activist campaigns led by hedge fund managers and other pesky institutional investors. But should you? The expense ratio of 75 basis points is certainly less than a "2 and 20" hedge fund, but the jury is out on whether it's going to outperform the index.
FactSet's ETF analyst Paul Britt said the Guru Activist Index ETF gets credit for being the first pure-play focus on activism in the ETF market. Some ETFs and some mutual funds have screens for good governance and healthy board representation but don't clearly go after the boards that activists see as ripe for ripping apart. The original Guru fund has been a winner, but with a key caveat. Its performance edge shows recent signs of weakening. In the past year, GURU has trailed the S&P 500, though since inception in 2012, Guru has beaten the index by a healthy margin.
"The concept is interesting," said Zacks Investment Director of ETF Research Neena Mishra. But she has a few reservations. For one, investors should wait to see if the ETF is able to gather at least $50 million in assets before considering it; otherwise, its trading costs will eat into returns. It might be cheap compared to hedge funds, but expensive for an ETF, and not only due to trading costs.
Mishra said that while some studies showing activist strategies do produce short-term outperformance, she's not so sure they can be profitable in the long run. So the onus would be on the ETF, and its investors, to identify the short-term pop perfectly. If that strategy doesn't work, it could make the new ETF, like the original Guru has been lately, an expensive index fund.
"I'm not too excited about it now," Mishra said. "We'll see if it can gather assets."
- Assets: $1.5 million
- Year-to-date performance: N/A