ETF Spotlight: Hedge Fund Clone

June 14th at 7:00am by Tom Lydon

ETF Spotight on AlphaClone Alternative Alpha ETF (NYSEArca: ALFA), part of an ongoing series.

Assets: $2.57 million. The ETF was recently launched.

Objective: The AlphaClone Alternative Alpha ETF tries to reflect the performance of the AlphaClone Hedge Fund Long/Short Index, which follows U.S. equities that hedge funds and institutional investors have disclosed significant exposure to.

Holdings: Top holdings include: Apple (NasdaqGS: AAPL), Express Scripts (NasdaqGS: ESRX), Simon Property Group (NYSE: SPG), Intel Corp. (NasdaqGS: INTC) and PepsiCo (NYSE: PEP).

What You Should Know:

  • Exchange Traded Concepts sponsors the ETF.
  • AlphaClone is the index provider.
  • ALFA has an expense ratio of 0.95%.
  • The fund currently holds 84 components.
  • The ETF started trading on June 1, 2012.
  • The underlying Index is equal weighted but may have an overlap bias – if more than one manager holds the same security, the security’s weighting is multiplied.
  • ALFA follows the “Clone Score methodology,” which scores a pool of over 300 managers every six months, with the disclosure lag.
  • “Holding periods tended to be on average about one year and much longer for top holdings,” Maz Jadallah, Chief Executive Officer of AlphaClone, said when describing a backtested performance to 2000 in an email.
  • “Performance was impressive: about a 1/3 of our clone strategies outperformed the S&P500 by 10 percentage point or more,” Jadallah added. “Some clones even beat the actual performance of the underlying hedge funds they were mimicking.”
  • Nevertheless, it should be noted that the hedge fund replication strategy can only track acquisitions once they’ve been disclosed, which usually does not happen until a brief lag time after a position has been initiated.
  • Currently, ALFA is directly competing with a similar hedge-fund replication strategy ETF, the Global X Top Guru Holdings Index Fund (NYSEArca: GURU). [Breaking Down the New Hedge Fund ETFs]

The Latest News:

  • According to Citi Prime Finance, assets invested under hedge funds could more than double by 2016.
  • The study concluded that pension funds, endowments, foundations and other institutions are adopting greater risk management and diversification as hedge funds diversify into other products and assets to compete with traditional, long-only managers.
  • “We see a second wave of institutional allocations to hedge fund strategies, as well as new allocations to long-only strategies managed by hedge fund firms,” Sandy Kaul, U.S. Head of Business Advisory Services at Citi Prime Finance, said in the press release.

AlphaClone Alternative Alpha ETF

For past stories in this series, visit our ETF Spotlight category.

Max Chen contributed to this article.

Story updated for a correction. The ETF is sponsored by Exchange Traded Concepts. AlphaClone is the index provider.

The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.

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