Market Index Fund Investments | Hedge Fund Notes

Market Index Fund

Market Index Fund Investments

Ever wonder what hedge funds use when they just want to go along with an index, reaping the gains from a possible rally or helping to diversify and take risk out of their potfolio equation? That’s a no-brainer; just buy shares of a tracking index. QQQQ for the NASDAQ, DIA for the Dow Jones, IWM for the Russell 2000 and SPY for the S&P 500 are all vehicles of choice if you wish to track tick for tick an index. Compiling data from TickerSpy’s database of hedge funds shows that 61 have a position in the market index itself. The most popular by far is the SPY, numbering 37 out of the total 61 funds currently holding a position indirectly in the US markets.

So, what is the SPY? Technically speaking it is known as the SPDR Trust, Series 1 and is a unit investment trust that issues Standard & Poor’s Depositary Receipts. But in laymen terms; it is a tracking stock for the S&P 500 Composite Stock Index, which consists of the US’s largest companies. Its value is roughly worth 1/10th of the index and mirrors the S&P’s daily undulations. Investors and traders alike can buy and sell shares of the SPY just like that of GM or YHOO. The advantage is that there is no need to create and balance a basket of stocks resembling the index, and entry and exit from the market is as easy as the click of a mouse.

A very liquid market, easy entry / exit and profit opportunity draws hedge funds to favor index trackers, such as the SPY. According to TickerSpy’s most current data on SPY holdings, 37 hedge funds had positions totaling $5.47 billion. However; quarter-over-quarter investment in the SPYs declined $1.43 billion dollars or 21%. Money has been coming out of the index trackers and flowing into other investment opportunities or just sitting on the sideline.

Eight of the 37 funds took new positions as of the start of the quarter, perhaps betting on an exhaustion and overextension of the current downtrend. Thirteen of the 37 took money off the table and slashed positions; while sixteen put more money on adding to their current holdings.

The bag is mixed when it comes to the number of funds adding to or taking away from SPY positions. But one thing is clear; the larger firms have been dumping the SPYs, while smaller firms have been picking them up. Four funds accounted for 90% of the cash outflows from the SPY while the 24 funds establishing new and adding to positions only generated $585 million in cash inflows.

Guest post contributed by Anthony Zipparro

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