It’s no secret that many hedge funds like to use exchange traded funds to make a market bet, both on the long and short side. No hedge fund manager uses ETFs more pervasively than Barton Biggs of Traxis Partners. At the end of the fourth quarter, 11 of his 12 largest holdings were exchange traded funds (the only except was DuPont).

The 11 ETFs accounted for roughly 63 percent of the $500 million Traxis reported in its U.S. equity holdings, according to the SEC filing. This is not an anomaly. ETFs regularly account for a majority of Traxis’ assets.

In an e-mail message in December, Biggs said he does not have an ETF strategy as such. “Basically I develop a fundamental country or sector view and then implement it either with a basket or an ETF depending on efficiency and liquidity,” he said.

However, he did concede he is “a little nervous about the huge flows into ETFs and it makes me wonder they’re an accident waiting to happen” the next time there is a market crisis.

It is not surprising that Biggs, of all people, would use larger sector bets as a big part of his investment portfolio. Before starting Traxis in 2003, Biggs was the chief global strategist for Morgan Stanley, where he had spent 30 years. His background is not as a stock picker.

By far his largest holding at the end of the year was Powershares QQQ Trust, a unit investment trust designed to mimic the performance of the Nasdaq-100 index. The QQQ Trust position was roughly double his second largest stock — an ETF that tracks the oil services industry.

Rounding out the top five holdings: A Select Sector SPDR Trust that tracks financials, a SPDR that tracks the Industrial Select Sector Index and iShares that track the Russell 2000.

The financials SPDR was by far the largest of the seven new stock positions Biggs took in the fourth quarter, three of which were ETFs. The other two were ETFs that track the Brazilian stock market and one that tracks the Russian stock market.

Of the 18 equity positions he fully closed out in the fourth quarter, the largest was a SPDR that tracks the health care industry.

How well does this approach work? Not very. Last year Biggs’ offshore fund was up only about 3.65 percent. His annualized return since inception is a little over 6 percent.

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