Do you want your exchange traded fund (ETF) to provide market-beating performance? Well, one hedge fund provider is looking into a way to bring in more clients by enticing investors with a hedge-fund-type ETF that outperforms the market.
ETFs have pulled in more than $1 trillion in the last decade, up 46% in 2009 alone, but the funds have been mainly used as a cost-effective way of managing broad market risk instead of a source of market outperformance, reports Simon Nixon for The Wall Street Journal.
Last year, Deutsche Bank launched a hedge-fund-of-funds ETF that has more than $1 billion in assets under management. Marshall Wace plans to launch a London-and-Frankfurt-listed ETF that will be the first in Europe to be run by a dedicated hedge-fund-group manager and the first to target absolute returns from a single strategy.
Marshall Wace will employ a TOPS strategy, or a trading system that tries to identify the brokers whose recommendations consistently deliver value. The underlying funds are liquid and will be invested entirely in large-caps. The TOPS strategy has been delivering alpha, with the six TOPS funds providing, on average, 10.9% each year.
Investors may be turned off by the extra 0.25% in fees on top of the 1.5% management fee, along with a 20% performance fee paid out of the underlying funds. However, the ETF market could allow a wider range of investors access to hedge funds.
For more information on actively managed ETFs, visit our actively managed ETFs category.
Max Chen contributed to this article.