Everyone wants to be a billionaire—or at least trade like one. That’s the assumption behind a relatively new company, iBillionaire, based in New York City. The company, which presented at the Finovate Conference in New York this month, launched a novel exchange traded fund in August. Its goal: To beat the S&P 500 index by using the investing wisdom of billionaires.
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So far, it’s had some success. The Direxion iBillionaire Index ETF (IBLN), which tracks the investments of 10 billionaires including Carl Icahn, David Einhorn, and George Soros, has returned nearly 15.4 percent since Nov. 1, 2013. That compares to 12.8 percent for the S&P 500 over the same period. The fund includes only 30 of the S&P 500 stocks in which the top performing billionaires invest.
Alejandro Estrada, a co-founder of iBillionaire, says to think of this ETF as a booster for the S&P 500.
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But investors focused on this fund shouldn’t necessarily expect to mimic the returns of these well-known billionaires. The exchange-traded fund, which has $36.4 million assets under management and charges fees of 65 basis points, makes investments based on the 13F filings of billionaire investors. These forms, which must be completed by managers with $100 million or more in assets under management, are only disclosed quarterly to the Securities & Exchange Commission so there can be a significant lag between the date that the billionaire buys or sells shares of a stock and when the ETF replicates the trade.
IBillionaire got its start when its founders, Estrada and Raul Moreno, got the idea that tracking the investments of billionaires could be a way to generate high returns. They scoured the Forbes 400 list of billionaires and separated out those who made their fortunes in stocks and investing from the others. When it came to choosing the billionaires who would make up the index used by the exchange-traded fund, they required three years of 13F filings with the SEC and also considered the billionaires’ performance. With that, they picked the 10 who they would follow in the ETF.
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Earlier, they had also created an app, downloadable to your smart phone. It used to cost $4 per year, but now it’s free. The app, which you get from the iTunes store, follows 20 billionaires and can use more recent trade data, such as the Form 4, which tracks insider trades and must be published within two business days of a trade taking place. With the app, you can scroll through 20 billionaires, compare your investments to theirs, click on a stock that one billionaire owns to see which other billionaires also own it. The app will also send you alerts so you’ll know, say, how many shares Warren Buffett bought in a particular company, or how many shares David Einhorn sold.
The notion of being like a billionaire, investing like a billionaire, and even knowing what the billionaires are doing is a sexy one. The app makes you feel close to the action while the exchange-traded fund tries to outperform the market based on a delayed response to the trades some billionaires make.
But investors should know that while this may be a fun (and possibly profitable) approach to investing, mimicking others—even billionaires—won't necessarily lead to riches. If you decide to use the app or invest in the ETF, make it for just a portion of your total portfolio. And remember, even billionaire investors sometimes make mistakes.
—Nikhil Hutheesing (@Nikhil212 on Twitter)
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