Hedge funds are the preserve of wealthy individuals and institutional investors, but U.K. hedge fund manager Marshall Wace, which manages over $5 billion in assets, is effectively dropping its membership requirements with the planned launch of an exchange-traded fund (ETF) that will replicate one of its flagship strategies. Should you own this ETF?
Don't be so passive!
Most ETFs, including the SPDR S&P 500
The Tops strategy relies on a systematic tracking and ranking of hundreds of analyst stock recommendations from brokers (Goldman Sachs
Risks and opportunity
My concerns with this ETF are two-fold. First, the triple layer of fees creates a high hurdle for outperformance (0.25% in ETF administration fees, on top of the already generous 1.5% of assets and 20% performance fee that is typical for hedge funds -- Marshall Wace are "hyper-Helpers," to use Berkshire Hathaway
ETFs can be tremendous tools for asset allocation, but the best ones are low-cost, plain index ETFs. As a rule, investors should avoid overly complex products (leveraged long or short ETFs, for example); nonetheless, I'm going to reserve judgment on this new entrant for now. If Marshall Wace can replicate (and maintain) the performance of Tops, this ETF will enable individual investors to get high-quality exposure to hedge fund strategies.
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