Over the last decade, a brand new investment style has emerged: the copycat investor.
The basic idea is all the time the identical. Look on the quarterly reports of distinguished investment gurus and their holdings at the tip of every quarter. Then simply spend money on the identical stocks they hold.
The copycat form of investing has obvious problems. Holdings are released with a big time lag and we have no idea which stocks an investor bought and sold during 1 / 4. We can only see the holdings at the tip of every quarter.
However, if the investment guru is a long-term investor who holds mainly stocks and only a few derivatives or private assets, the copycat strategy could well work.
These copycat strategies were implemented within the US via exchange-traded funds (ETFs) and now have a comparatively long track record, which – crucially – also includes the bear market of 2020. To my knowledge, there are three such copycat ETFs, all of which invest exclusively in US stocks and may due to this fact be in comparison with the S&P 500:
- The Global X Guru Index ETF (GURU) has $74 million in assets under management and tracks the positions of hundreds of hedge fund managers.
- The AlphaClone Alternative Alpha ETF (ALFA) has $32 million in assets under management and tracks the holdings of around 500 hedge funds.
- The Goldman Sachs Hedge Industry VIP ETF (GVIP) has $220 million in assets under management and tracks the 50 stocks mostly held by hedge fund managers.
Since the GVIP ETF was launched in 2016, two of those ETFs have significantly outperformed the S&P 500. While GURU has lagged the index by 0.5% annually in total return, ALFA and GVIP have beaten the S&P 500 by 2.% and a couple of.6% annually, respectively.
Copycat ETF performance since 2016
Not bad, but this outperformance comes with higher volatility and bigger price losses during a crisis. The S&P 500’s biggest drop occurred at the peak of the pandemic panic in March 2020. At that point, the index fell 19.6%, while GVIP fell 21.4% and ALFA fell 25.1%.
As the chart above shows, this meant that the copycat ETFs either lost all the outperformance that they had achieved between 2016 and 2020 in a single month (as within the case of ALFA) or underperformed the S&P 500 after previously matching its performance (as within the case of GURU and GVIP).
Only within the wake of the recovery since April last 12 months did the copycat funds begin to perform higher.
And while the GVIP ETF has only been around since 2016, with the GURU and ALFA ETFs we will go even further back, to mid-2012 when these two funds were launched.
Copycat ETF performance since 2012
When we take a look at nearly 10 years of performance, we will hardly conclude that these copycat funds are adding much value. Both GURU and ALFA have underperformed by 1.3% and 1.6% annually, respectively, and have shown much higher volatility. The chart above shows that copycat funds did well within the 2012-2015 upswing after which lost all their outperformance and more within the 2015-2016 correction.
These copycat funds are very much like fair-weather investments that fail to perform over a whole cycle. In fact, copying other investors lacks a key ingredient for outperformance: creativity.
I’ll cover this ingredient in my next post.
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Photo credit: ©Getty Images / Joas
