The innovators were out with guns blasting as they introduced an exchange traded fund (ETF) that acts like a hedge fund.  How has it been doing since the March 25 launch?

This new ETF, established by IndexIQ analyzes publicly available hedge fund performance data and then tries to replicate returns utilizing ETFs and other liquid trading vehicles.  Additionally, it promises to perform as well as a hedge fund without the risk and with low correlation to traditional assets.  Another benefit that this ETF could offer to investors is risk reduction because of its low correlation with the stocks and bonds that already dominate an investor’s portfolio.

To take it a step further, the ETF replicates six different common fund strategies using ETFs to match the calculated risk exposure of the hedge funds, states Scott Burns of Morningstar.  It invests in other ETFs, and offers investors a low cost option to the world of alternative investments.

As far as performance, the Index IQ Hedge Mst ETF (QAI), is up 2.8% since inception and is well above its 200-day moving average. The downside is that it is a bit more expensive than a typical ETF, with an all-inclusive expense ratio of 1.09%.  This is still a far cry from the nearly 6% in annual fees that most hedge funds collect, however, which could be a key selling point for investors who want this type of exposure.

Kevin Grewal contributed to this article.

Tags: Asset Class ETFs, Hedge Fund Replication, New ETFs, QAI