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.
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.