The Buzz

All markets and investing news all the time

Forget the lottery. Invest in billionaire ETF?

April 2, 2014: 10:51 AM ET
ibillionaire app

The iBillionaire app launched in 2013. Now the company wants to launch an ETF based on legendary investors' picks.

If finance had a hall of fame, Warren Buffett, Carl Icahn, John Paulson, George Soros and Bill Ackman would probably be in it.

These men aren't just rich, they've managed to beat the market consistently.

Plenty of investors dream of being in their league, but decoding the market on your own is tough and buying into many of these famed investors' funds is steep.

While you can purchase a class B share of Buffett's Berkshire Hathaway (BRKB) for about $125, the A shares (BRKA) trade for a whopping $187,000. Paulson and Ackman run hedge funds that cater to wealthy investors only.

So what's someone without millions, let alone billions, to do?

One option may be the iBillionaire ETF that's set to launch in June. It's currently awaiting SEC approval.

"Most retail investors don't have a million or more to invest in all these hedge funds we are tracking. So really what the ETF is about is giving retail investors access to products they didn't have access to," Raul Moreno, CEO and co-founder of iBillionaire, told CNNMoney.

Moreno's company launched the iBillionaire app, which tracks the stock holdings of 21 billionaires, last year.

Users simply click on the name and photo of any titan and their stock portfolios come up along with data on how large each position is.

Investors can use the app to get ideas and to see how their portfolios compare to those of the financial stars. It's easy to use, and 85,000 people have downloaded it, according to the company.

The goal of the ETF is the combine the wisdom of the great investors.

Related: Buy a Warren Buffett Fathead for $29.99

The ETF will track the iBillionaire Index, a portfolio of the top 30 US large cap stocks these billionaires hold. The index averages the positions of 10 of the billionaires, including Buffett, who were selected because their portfolios don't turn over often and only contain large American companies.

Apple (AAPL), Wells Fargo (WFC) and Coca-Cola (KO) are the three largest holdings. They collectively make up more than 22% of the index.

One of the criticisms of this approach is that the index doesn't update frequently. Many hedge funds trade stocks on a daily basis, for instance, while the iBillionaire index updates only quarterly.

"We are looking only at investors not trading frequently. We're really targeting long-term investors," Moreno says.

So assuming the ETF gets the SEC's blessing, does it make sense as an investment for you?

Related: Soros betting against stocks? Not likely

Ben Johnson, director of passive fund research at Morningstar, warned that "it's a tall task when it comes to cutting through all of the marketing hype and unearthing whether or not there's actually any real economic intuition or investment merit" to some of these more gimmicky ETFs.

But the iBillionaire index has a decent track record. It has outperformed the S&P 500 over a one and three year time frame, but it is lagging the S&P 500 in 2014.

Still, there are similar investments currently on the market such as the Global X Guru Index ETF (GURU), which tracks the holdings of prominent hedge funds.

You could also argue that since the billionaires aren't really buying anything that unconventional, an investor might be better off with a standard index fund, like the SPDR S&P 500 ETF (SPY).

Related: Why Bill Ackman's bet against Herbalife could fail

Johnson notes there's been heated competition in the ETF field in recent years. Investment firms were "throwing anything against the wall" to see what stuck. The upside is that all the competition drove down fees.

The iBillionaire ETF, for example, will have an annual expense ratio cost of just 0.65%. That works out to $6.50 in fees for every $1,000 you invest. That's slightly lower than what the Guru ETF charges. And it's much lower than a hedge fund's fees.

Join the Conversation
Fear & Greed
Sponsored by
About This Author
Heather Long
Heather Long
Markets & Investing Editor, CNNMoney

Heather Long is markets and investing editor for CNNMoney. She was formerly an assistant editor at The Guardian and an editor at The Patriot-News, which won the 2012 Pulitzer Prize for Local Reporting. She started her career at the investment consulting firm Cambridge Associates and is a Rhodes Scholar. Follow her on Twitter @byHeatherLong

To view my watchlist

Not a member yet?

Sign up now for a free account
Stupid Stock Move of the Day
#StupidStock Move of the Day! $APT up 8%? Yes, there was a WSJ story on Ebola hazmat suit demand. And it did mention $LAKE. But not $APT.
Powered by WordPress.com VIP.
Follow

Get every new post delivered to your Inbox.

Join 242 other followers