8/1/2014

A new ETF was launched today that has a very similar name to our website and research.

Of course we at Billionairesportfolio.com like the strategy of following the smart money (the world’s best billionaire hedge funds and managers). In fact, we developed this process back in 2003 through our research at one of the top independent research firms.

The problem we have with the iBillionaire ETF is that the founder, Raul Moreno, isn’t a market professional but instead is a serial entrepreneur: tech today, finance tomorrow. With that, I am highly skeptical of his ability to construct a study with integrity and robustness that would lead to his claims. What are those claims? He claims on CNBC yesterday were that his “index” has outperformed the S&P 500 by 500 basis points (annualized) over the past eight years. To my knowledge, he created this index recently and cannot possibly claim a “return” over an eight-year history. Unless it’s an auditable return within the context of a money-management program, the performance claims attached to this ETF should be taken with a grain of salt (i.e., beware).

Yet I would be most concerned with the following:

1) iBillionaire includes George Soros in their index. This is ludicrous. Soros has been retired for over 10 years. His family office, managed by his son, is highly complicated, with assets spread across a variety of markets and themes. To piggyback his stock picks is of little value.

2) iBillionaire includes Richard Chilton in their index. Chilton is a relatively unknown “seed manager” who allocates money to hedge fund managers; the performance of his funds are average at best, and they own hundreds of stocks.

3) iBillionaire includes Bruce Berkowitz, the ex-stock broker who runs a mutual fund out of sunny Miami. Berkowitz imploded in 2011, underperforming the S&P 500 by a whopping 34 percentage points. We’re not sure he’s a guy you want to follow either. Berkowitz is not a billionaire. Though if you like Berkowitz and his investing style so much, you can simply buy his mutual fund, which has almost the same expense ratio as the iBillionaire ETF.

4) iBillionaire is basically an S&P 500 index clone. It holds only large-cap S&P 500 stocks, such as Apple, IBM and Coke — stocks that pretty much everyone already has in their retirement portfolio. So there is a very good chance you probably already own these stocks in your retirement portfolio or 401K, and you would just be duplicating your holdings by purchasing this ETF.

5) Also, according to my statistics, the iBillionaire Index has almost a 95% percent correlation to the S&P 500, so, again, you are basically getting the same exposure as owning the S&P 500 ETF ($SPY), except $SPY is 75% cheaper.

6) Lastly, and perhaps most importantly, the iBillionaire ETF has no track record, nor does its manager. At best, the numbers they promote are just a hypothetical backtested return with very little statistics given to validate it. At worst, those numbers could be completely made up, given there is no regulatory and auditing scrutiny given to the attributes of a newly created index.

In conclusion, the iBillionaire ETF looks like a passive way to get exposure to the biggest stocks in the S&P 500, with the wrapper of a hot, sexy concept (billionaires).

Will Meade
President of The Billionaires Portfolio (the first ever documented service that piggybacked the world’s best billionaire hedge funds and managers).
Billionairesportfolio.com