"The smart money doesn't typically go after ETFs. Why bother with passive investment products that charge an expense ratio in the ballpark of a fraction of a percentage point every year when you can just pick up some individual names? While ETFs make it convenient to bet on a broad batch of stocks focused on a particular index, sector, theme, factor, or something else, the convenience factor is not typically why a big-name hedge fund would punch its ticket to such a security."
"Of course, the only way to know with certainty why a fund bought an ETF would be to ask. It might be just a "parking spot" alternative to cash, or perhaps it's just the most cost-effective way to bet on a certain type of stock. At the end of the day, an ETF is only as good as the holdings that make it up."
"So, if you're a fan of everything underneath the hood, perhaps it's just the most cost-effective move to gain broad exposure to ample names that fit the theme or trend that one is bullish on. Either way, going down the ETF route stands out as more of a tactical way to gain exposure to a certain corner of the market without having to pick up shares of tens of individual names-something that costs time and money."
Smart money does not typically target ETFs directly because passive products charge ongoing expense ratios and offer broad, non-selective exposure. ETFs provide convenient access to many stocks tied to an index, sector, theme, or factor, which can save time and transaction costs versus buying numerous individual names. Hedge funds may use ETFs as a parking spot, a cash alternative, or the most efficient route to express a thematic or factor bet. The effectiveness of an ETF depends on the underlying holdings. In Q4 2025, several large hedge funds added the iShares S&P 500 Value ETF (NYSEARCA:IVE), including Davis Advisors, which took a small position under 0.2% of holdings.
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