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Suppose I have made a list of hedge funds that are known to successfully follow a particular style of longer-term investing (e.g. long-term momentum, or value, or ...). I notice that this group of funds will often buy or sell the same stocks in the same quarter. I would like to copy these "consensus picks". Advantages:

  • Low minimum investment requirement (e.g. 1 share).
  • Avoids hedge fund management fees.
  • Peace of mind due to the consensus.

What are the disadvantages of this particular method of "copycat investing"?

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3 Answers 3

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One disadvantage is the lag between the hedge funds' moves and the public disclosure of those moves.

If still interested, the ETF 'GVIP' has the same strategy. You could buy the ETF or track the ETF's daily holdings at the Goldman Sachs Asset Management site (see "Download All Holdings Excel").

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In addition to the timing disadvantage that others have mentioned, even if you were able to immediately copy the hedge funds exactly, there's a good chance you'd underperform a simple low-cost stock index fund! The S&P 500 has consistently outperformed an index of hedge funds over the past 10 years.

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the market is often very efficient in the sense that once you're aware of the consensus, much of the upward movement of stocks with a buy rating has already been made. the same is true with popularized ETFs and other vehicles.

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