Goldman Sachs to Turn Its Hedge Fund Research Into an ETF

Basically, Goldman created an ETF based on the holdings of the fundamentally-driven hedge funds that its research tracks. They’re also launching a high-Sharpe-ratio ETF.

Thought this was an interesting read, especially that I’m now studying alternative investment, and I find much of the information in the reading to seem outdated.

Its an interesting concept, but I can’t imagine it’ll have sucess. If it’s just trading off of hedge funds 13F filings then it’s acting on a time lag, as every move they make will be days/weeks/months after the underlying hedge funds made their trades. So if Hedge Fund XYZ sells apple in February, and discloses that in its 13F in March, then the ETF won’t trade until April.

Basically the investors in the ETF are the sheep following the hedge fund managers. If the ETF attracted a large AUM, it’d be a great boost to the hedge funds they track though. Every stock they buy will get a subsequent round of purchases shortly after.

I never understood how active funds with nonpublished strategies could get an ETF to work. The whole idea of an ETF is that you can trade redepmtion units to keep prices in line through arbitrage. But that requires a published basket. There could be a delay, but then that would create enormous tracking error, to the point where it would seem like the ETF holders are the guys holding the bag when the fund wants to redeem stuff for their primary holders.