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The new iBillionaire ETF promises to model the investments of gurus like Warren Buffett, but will it really produce as advertised?
On Aug. 1, investors got the latest opportunity to invest like the great ones – the Warren Buffetts and Carl Icahns of the world – when a new exchange-traded fund (ETF) hit the market.
The Direxion iBillionaire Index ETF (IBLN) aims to model the top portfolios of the investment wunderkinds of Wall Street by selecting the top 30 holdings in the portfolios of “up to 10 billionaires selected from a pool of 50,” according to Direxion Investment’s website.
It’s like I, Robot. If I were writing this fund’s movie trailer, it’d go like this (cue the throaty movie-trailer voice):
“In the heady market days of 2014, fund managers were programmed to follow the Three Laws of Investing: Never harm an investor, always obey your clients, and protect your own existence unless doing so violates laws one or two. All was right with the world and investors got a regular 10% annually until one fund manager went rogue, disrupting the very peace he was tasked to preserve….”
Where’s Will Smith when you need him?
Of course, while some fund managers are robots, not all are committed to never harming their clients, so let’s take a look at this new ETF.
First of all, it doesn’t do anything you or I can’t do on our own. iBillionaire’s managers don’t sit down with Warren Buffett at Dairy Queen and get a list of his top holdings.
They get them straight from a public Security and Exchange Commission (SEC) filing called Form 13F, which every institutional investment manager who manages over $100 million must file.
Now, if you want to model along with the masters, it may very well be worth it to get into this fund. Its current expense ratio is 0.65%. Who wants to sift through SEC forms anyway? As our analysts here at Wyatt Investment Research know, that can be a mind-numbing exercise.
Paying $65 on every $10,000 you invest isn’t so bad. It’s certainly less than what you’d pay if you got into a billionaire hedge fund.
On the other hand, the fund’s top 10 holdings are Williams Companies (NYSE: WMB), Micron Technology (Nasdaq: MU), Apple (Nasdaq: AAPL), Halliburton (NYSE: HAL), Google (Nasdaq: GOOG), Priceline (Nasdaq: PCLN), Microsoft (Nasdaq: MSFT), Anadarko Petroleum (NYSE: APC), FedEx (NYSE: FDX), and Citigroup (NYSE: C).
So if you want to just stick to the top 10 holdings and skip the other 20, I just saved you 0.65%.
Don’t expect to model the performance of these billionaires anyway. Form 13F is a quarterly report, so it already lags behind 45 days by the time anyone sees it. Further, this ETF only models long-term positions and doesn’t account for any day-to-day active management or shorting of stocks as the pros might undertake.
Similar funds like Global X Guru Index ETF (GURU) with $499 million in assets and AlphaClone Alternative Alpha ETF (ALFA) with $79 million in assets beat the S&P 500 in 2013, but have lagged behind it so far this year. As iBillionaire launched, GURU was up 0.6% and ALFA was up 0.3% vs. the S&P’s 4.5% gain for 2014.
You can’t fault iBillionaire for trying. In an increasingly crowded ETF space, which seems to model everything except Stocks My Mom Would Buy (MOMS) – though I’m working on that one – you have to get creative.
There is another way, however, if you want a seat at the table with a great investor. You may not be able to share a Dilly Bar with Warren Buffett, but you can partake in every move my boss, Ian Wyatt, makes in his real-money portfolio, aptly called the Million Dollar Portfolio because his goal is to grow his account from about $350,000 to $1 million.
As investors, we may not become billionaires. We may never have an ETF that models our investment picks. But with time and consistent investing in great companies, a million dollars is definitely within reach. Ian’s going to show us how he gets there, and I look forward watching every step of the way. So can you.
Bob Bobala is the Managing Editor of Wyatt Investment Research. He doesn’t own any of the funds mentioned in this article, though he does like the idea of an ETF based on stocks his mom would have invested in. He owns shares of Google and Apple.