2018 ended on a sour note for investors. Global stock markets fell by double-digits on growing worries over politics and slowing economic activity. But just when it seemed like things couldn’t get much worse, the calendar turned over to a new year, and stocks came roaring back. Since the start of the year, the S&P 500 index is up 13% as of this writing.
Times like right now can be confusing to navigate for individual investors, but take a cue from the big boys and use the dips to go shopping. Here are two assets that were the desire of professional money managers and one that Warren Buffett recently made a move on…
If you can’t beat it, buy it
Chuck Saletta (SPDR S&P 500 ETF): With very few exceptions, it is incredibly rare for professional money managers to be able to sustainably beat the S&P 500 index over time. Yet they try, at least in part because they can’t get paid nearly as much for simply investing other people’s money in an index and letting the market earn the returns for them. So when hedge fund managers decide it’s time to buy the SPDR S&P 500 ETF — which tracks the S&P 500 — then it’s time to sit up and pay attention.
According to the folks at WhaleWisdom, hedge funds increased their position in the SPDR S&P 500 ETF by around 22.2 million shares in the last quarter of 2018. That’s a whopping 44% increase in their holdings of that index fund in the quarter. During that same time period, that ETF dropped around 14% in value, which made it a tempting target for bargain hunters, particularly near the end of the quarter when it was near its lowest.
It’s not exactly clear why hedge funds were snapping up shares in that index. As the name “hedge fund” implies, they may have simply been hedging against short positions, going long the index to protect against a market snap back while they were short during the downturn. Or it could have been that they simply could find no better alternative in the market than buying a broad market index itself.
Either way, when the professionals decide to embrace indexing to the tune of somewhere in the neighborhood $5.5 billion of incremental investments in the space of a quarter, it’s time to take notice. If nothing else, it’s a great reminder to us mere mortals that indexing is still a great strategy for earning stock market returns with very low costs. And that makes the SPDR S&P 500 ETF worthy of consideration by anyone looking to build wealth over time…
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