Kevin Quigg, global head of SPDR ETF strategy and consulting at State Street Global Advisors, points out that hedge funds use ETFs as a traditional hedge, as a placeholder while individual securities are selected, if the manager lacks infrastructure or specific knowledge of the market or sector, or to arbitrage an individual security.
Additionally, Mark Bamber, managing director and head of Deutsche Bank’s Delta One trading unit, notes ETFs allow hedge funds to “mask their trades” or to preserve their anonymity while investing.
Hedge funds also use ETFs to “express their technical macro views,” Bamber added. When “correlations between individual securities are high or volatility is spiking, hedge fund managers tend to use ETFs to take broad-brush exposures on sectors.”
For more information on ETFs, visit our ETF 101 category.
Max Chen contributed to this article.