While the U.S. stock market hit multiple highs yet again early this quarter, investors lost hope on bouts of volatility and heightened uncertainty. A slew of weak economic data, soft corporate earnings, and the reemergence of the Greek default drama softened investors’ sentiment, leading to concerns over a slowdown in the U.S. economy.

Further, the Fed downgraded its outlook on the labor market and economy in its latest policy meeting, suggesting that the bank will wait for some more months before the first interest rates rise since 2006. Last week, it also warned that “equity market valuations are quite high at present." (Read: Don't "Sell in May and Go Away": Follow 3 ETF Strategies)

In such a backdrop, investors are seeking some smart stock-selection techniques much like the gurus to alleviate the risks in the market. After all, these ambitious and iconic investors have proven their supremacy by making huge money in any market environment.

While matching investing styles of stock market gurus like Warren Buffett, Bill Ackman, Daniel Loeb, Cark Icahn or David Einhorn is a daunting task, the advent of guru style ETFs have made it simpler. These seem the best way for investors to tap some strategies of their favorite gurus.

Guru ETFs: Pros and Cons

These funds replicate the investing styles and predictions of market gurus, providing a solid and well-diversified portfolio, which seek to outperform the broader market. This is because the funds avoid some pitfalls of tracking one ‘master’ of the investing world, heavily concentrated on a particular style or market segment.

Further, some gurus might take positions in swaps, futures or more exotic securities that general investors may not be able to grasp. For them we suggest the basket approach. Though the products charge a somewhat higher fee than the other ETFs with less exposure to this world, the cost is just a fraction of what investors pay for a ‘true’ hedge fund exposure (read: Follow Stock Market Gurus with These ETFs).

However, the strategy has one big drawback. Since the large investment firms or hedge funds which manage ETFs need to disclose their holdings and portfolio moves on a quarterly basis, the holdings’ update could often be stale as managers can move in and out of a security before the regular update.

Below, we have highlighted some of the most popular ETFs, which look to track market experts, and their investment picks. All these differ in one way or the other and could make for an exciting choice in this lucrative corner of the ETF market. These ETFs either try to clone stock investments of gurus or imitate their investing styles:

Global X Top Guru Holdings Index ETF ((GURU - ETF report))

This fund uses a proprietary methodology to compile the best ideas from a select pool of hedge funds by looking at the 13F document on a quarterly basis. 13F filing is the document where all hedge funds with more than $100 million in equity investments are required to publish their holdings. The product excludes hedge funds with a high turnover and aims to generate alpha versus benchmark equity indexes.

This approach results in a basket of 43 securities, each holding no more than 2.94% of assets. Pandora Media, HMHC Equity and Celanese Corporation are the top holdings at present. The portfolio is slight tilted toward technology at 28%, closely followed by financials (18%) and consumer discretionary (17%). The ETF has amassed $296.3 million in its asset base while volume is moderate, exchanging 93,000 shares in hand. It charges 75 bps in annual fees and has gained nearly 7% over the past one-year period.

AlphaClone Alternative Alpha ETF ((ALFA - ETF report))  

This fund tracks the AlphaClone Hedge Fund Long/Short Index. The benchmark uses a proprietary ranking system, ‘Clone Score’, which ranks hedge funds and institutional investors based on the efficacy of replicating their publicity disclosed positions. It also has a hedge mechanism built in, which is triggered on or off when the S&P 500 index (SPY) crosses its 200-day moving average at any month end. If the market goes down, the index goes from long-only to market hedged (50% short exposure to S&P 500).

Holding 73 securities in its basket, the fund is pretty spread out across components with none accounting for more than 4.2% share. Apple (AAPL), Valeant Pharmaceuticals (VRX) and Biogen Idec (BIIB) are the top three holdings while technology dominates the fund’s portfolio from a sector perspective with one-third share. The ETF has garnered $141.5 million in its asset base while trades in volumes of 25,000 shares per day. Expense ratio came in at 0.95%. ALFA has returned about 22% over the past one-year period (read: How to Invest in Emerging Technologies of the Future with ETFs).

Validea Market Legends ETF ((VALX - ETF report))

Unlike many of its peers, this fund is actively managed and seeks to follows stock investing styles of Wall Street legends on a monthly basis rather than the 13F filings. In total, the product holds 100 stocks in its basket using 17 fundamentally models based on the approach outlined by Buffett, Graham, Neff, Lynch and many others and 10 distinct "guru"-based models based on an array of investment styles, including value, growth, momentum and income.

The portfolio follows an equal-weight approach with Ebix (EBIX), GW Pharmaceuticals (GWPH) and Nautilus (NLS) as the top three holdings. Each security makes up for less than 1.6% share each. From a sector look, the fund is heavy on technology, consumer discretionary and financials with double-digit exposure each while light on real estate and basic materials. VALX has attracted $22.4 million in capital since its debut on December 10 and charges 79 bps in fees per year. It trades in low daily volume of about 14,0000 shares on average and has added 3.6% so far this year (read: Yet Another ETF to Follow Stock Market Legends Debuts).

Direxion iBillionaire Index ETF ((IBLN - ETF report))
 
The fund provides an opportunity to invest like billionaires by tracking the iBillionaire Index. The benchmark first selects 10 billionaires based on several criteria including net worth, source of wealth, portfolio concentration, turnover, and performance over time though 13F filing. Then, it selects stocks based on the highest allocations in the billionaire’s portfolio.

This gives equal-weighted portfolio of 30 large-cap stocks with Apple, Actavis (ACT) and Amgen (AMGN) as the top three holdings. Consumer discretionary and technology takes the top two spots with 31% share each while health care and materials round off the top four with double-digit allocations. The fund has AUM of $35.3 million and charges 65 bps in fees from investors. Volume is low, exchanging 14,000 shares in hand per day. The ETF is up 4.6% since its debut in August.

Guru Activist Index ETF ((ACTX - ETF report))

This is a newly debuted fund in the space offering investors exposure to 50 U.S. large-cap stocks of major activist investors, which are chosen from the publicly available information contained in 13F and 13D filings. It follows the Solactive Guru Activist Index and charges 75 bps in annual fees. The fund has garnered enough interest from investors in its first month of debut, accumulating $3 million in its assets. Volume is light at 19,000 shares (read: Another ETF Following Footsteps of Billionaires).
 
ACTX is an equal-weighted ETF at around 2%, with Juniper Networks (JNPR), Valeant Pharmaceuticals and Halliburton taking the top three spots. The product is also well diversified in terms of sector exposure with financials, energy, technology, consumer discretionary, health care, materials and industrials all taking double-digit allocation in the basket.