An All-ETF Hedge Fund? You've Got to Be Kidding

By Jim Wiandt

Maybe it's not kosher to pan the top feature on our (Index Universe's) own home page, but here goes.

2% a year plus 25% of any profits to hold a portfolio of "3 to 10 ETFs"? Kudos to you, Hermosa Capital Management LLC, you've taken brazen shamelessness to new heights. I mean, I can run that portfolio, no problem. Indeed, a MONKEY could run that portfolio. As a matter of fact, our staff monkey, Bobo, DOES run a portfolio which holds the full 10 ETFs. And he's been on a hell of a roll.

Take a look here to get a feel for how the magic of Bobo works.

I'd like to make a bet right HERE and NOW, Hermosa Capital Management, that Bobo's dart-throwing portfolio of 10 will beat your new hedge fund of ETFs over the next 5 years (I'd make it 10 years à la Warren Buffett, but I don't think you'll make it that long). Indeed the odds are on Bobo's side. He's got a 200 basis point head start right out of that gate. And let me tell you (and you can smirk all you want), that little guy can PICK STOCKS. He's crushed the field the last 2 years running.

The wager? A truckful of bananas (no joke at today's soaring banana prices). So are we on?

Comments

[Geoffrey Lordi]

A 200bp head start? If you were really interested in doing this, there'd be no head starts: you'd standardize movement and start from an index point...I, too, question the development of this product - but at least compare bananas to bananas...

[masterofdabull]

I don't know about the Hedge fund's ability to make money, I just want to meet that darn monkey!

[WickedPedia]

Low cost , a diversified portfolio made of best ETFs. Why do you think this is such an impossible deal ?

[Jim Wiandt]

Did you read the original article? It's a hedge fund that charges 200 basis points per year. So THAT is the 200 basis point head start. Bobo hands out his picks for free. I DON'T think a diversified portfolio made of the best ETFs is a bad idea, I think it's a GREAT idea, but the hedge fund offering is EXTRAORDINARILY HIGH cost.

Jim Wiandt
jwiandt@indexuniverse....

[j'adoube]

Their chutzpah knows no bounds.

[Smart ETF]

Now Jimmy boy, I see your point and at the surface it does sound and look ridiculous; especially after the performance fee. But just to shed light on a different perspective, most ETF models are passive and a hedge fund clearly is not; thus the opportunity to out-perform. There is a new breed of physics-based models, like Extreme Value Theory (put that in Amazon or Google Scholar and check out the math). You will find newer methods to manage risk and the time-series of data. These advanced models can be used in both asset allocation models and technical analysis. Add this to the growing number of short funds and alternative ETFs and you can brew up quite a mix of out-performing assets. The downside is the lack of volume in most ETFs and as you know this creates huge risk. In addition, the bigger volume ETFs are associated with the major market indices, which are more efficiently priced; not the sort of investment most active managers seek. My concern is that this fund will be constrained by the volume associated with the more inefficiently priced ETFs. Regardless, I applaud your brazen opinion, a stance most investment professionals are challenged to attempt.