The early August doldrums give us a chance to investigate an interesting ETF from IndexIQ which debuted last October, QMN (IQ Hedge Market Neutral Tracker ETF, Expense Ratio 0.75%).
IndexIQ is known in the industry for their “hedge fund-like” strategies offered in ETF form, and this fund is no exception in terms of design.
Those whom are familiar with direct investment in hedge fund vehicles certainly know that “market neutral” is a common investment mandate for dozens of hedge fund managers that have been in the space for decades now.
Institutional pension managers, portfolio managers of large state entities such as retirement systems, as well as institutional consultants are likely very familiar with vetting market neutral hedge fund strategies, but this ETF offers an accessible vehicle for such a strategy in retail ETF form.
Like other IndexIQ products, QMN uses a proprietary strategy to invest in other ETFs within its product wrapper, in order to deliver the following according to fund literature, “1) Seeks performance similar to the universe of market neutral hedge funds 2) Seeks low correlation to equity market 3) Intra-day liquidity 4) Portfolio transparency – holdings available daily 5) No manager specific risk – fund tracks rules-based index.”
Of these five features, some are very common sense in terms of what is available in any ETF, but the fifth one specifically stands out for those wealth managers whom oversee high net worth and/or institutional money whom typically use one or more individual hedge fund managers in terms of potential diversification away from putting all of your eggs in one basket so to speak with a hot HF manager.
Currently QMN favors short term bonds (via ETF allocations) as well as TIPS Bonds, which make up 38.78% and 19.19% of the portfolio accordingly, with lesser allocations to International Equity (18.42%), the Broad Bond market (14.66%) and Convertible Bonds (5.38%) for instance.
There is currently a short position in Currencies (-3.06%) as well. Those whom vet individual hedge fund strategies and managers are intimately familiar with the concept of “drawdown.”
QMN’s fund literature depicts how the index that QMN follows has performed since inception in a “maximum drawdown analysis,” and this data shows the index notably out-performing the drawdown in the SPX during the same time frame, which was the tumultuous 2008/2009 period.
Hedge fund “like” ETFs have been increasing in number over time, with a handful of other offerings that are also in the “Market Neutral” space such as BTAL (QuantShares U.S. Market Neutral Anti-Beta Fund, Expense Ratio 0.81%), SIZ (QuantShares U.S. Market Neutral Size Fund, Expense Ratio 0.81%), CSMN (Credit Suisse Market Neutral Equity ETN, Expense Ratio 1.05%), CHEP (QuantShares U.S. Market Neutral Value Fund, Expense Ratio 0.99%), and MOM (QuantShares U.S. Market Neutral Momentum Fund, Expense Ratio 0.81%). All of these funds remain rather small in terms of asset size and average daily volume traded but being a newer concept in the active/ETF space this has come to be expected.
IQ Hedge Market Neutral Tracker ETF
For more information on Street One ETF research and ETF trade execution/liquidity services, contact Paul Weisbruch at pweisbruch@streetonefinancial.com.
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