The idea of hedge fund replication in exchange traded fund (ETF) form has caught on with investors who want hedge fund strategies, minus the hedge fund cost. IndexIQ, the provider of such strategies, just marked its third anniversary of these indexes.
The IQ Hedge indexes are designed to mirror the performance characteristics of sophisticated hedge fund strategies, like global macro, emerging markets, long/short equity, market neutral, even driven and fixed-income arbitrage, according to ETFExpress.
Making up around 80% of a total hedge fund assets globally, the hedge fund strategies utilized in the indexes are some of the most well-known in the market. Adam Patti, chief executive officer at IndexIQ, says that the volatility in the financial markets over the last couple of years has provided a perfect stress test for the indexes. Now, investors may benefit from the diversification found in hedge funds without having to deal with the structural impediments.
The benefits of the IndexIQ ETF hedge fund investment styles include: accessibility of hedge fund strategies for all investors, intraday liquidity, low correlation, portfolio transparency and a specified methodology that limits manager subjectivity.
IQ Hedge Multi-Strategy Tracker ETF (NYSEArca: QAI) is up 0.6% year-to-date. QAI tries to reflect the performance of the IQ Hedge Multi-Strategy index, which attempts to replicate the characteristics of hedge funds using various hedge fund investment styles. The fund has an expense ratio of 0.75%.
Top allocations include: international equity 25%, short-term bonds 24.7% and corporate bonds 19.2%.
Top holdings include: iShares iBoxx $ InvesTop Investment Grade Bond Fund (NYSEArca: LQD) 18.55%, iShares MSCI Emerging Markets Index Fund (NYSEArca: EEM) 15.10% and iShares Barclays Lehman 1-3 Year Treasury Bond Fund (NYSEArca: SHY) 13.98%.
IQ Hedge Macro Tracker ETF (NYSEArca: MCRO) is up 1.5% year-to-date. MCRO tries to reflect the performance of the IQ Hedge Macro Index, which attempts to replicate the characteristics of hedge funds pursuing a macro strategy and hedge funds pursing an emerging market strategy. The fund has an expense ratio of 0.75%.
Top allocations include: international equity 36%, short-term bonds 28.1% and corporate bonds 14.2%.
Top holdings include: iShares MSCI Emerging Markets Index Fund (NYSEArca: EEM) 24.6%, iShares Barclays Lehman 1-3 Year Treasury Bond Fund (NYSEArca: SHY) 15.9% and iShares iBoxx $ InvesTop Investment Grade Bond Fund (NYSEArca: LQD) 13.7%.
Max Chen contributed to this article.