ETF Chart of the Day: Hedge Fund Strategy

We have covered the “Hedge Fund” category of ETFs from time to time in the past and the largest fund in the category QAI (IndexIQ Hedge Multi-Strategy Tracker ETF, Expense Ratio 0.75%) recently celebrated its fifth year of live performance near the end of March.

This fund is actually a “fund of funds”, as it utilizes other ETFs within its investment methodology, with top holdings currently in well-known products including BND (Vanguard Total Bond Market, Expense Ratio 0.10%), BSV (Vanguard Short Term Bond, Expense Ratio 0.11%), AGG (iShares Core Total U.S. Bond Market, Expense Ratio 0.08%), BKLN (PowerShares Senior Loan, Expense Ratio 0.66%), and IWF (iShares Russell 1000 Growth, Expense Ratio 0.20%).

According to fund literature, the index “attempts to replicate the risk-adjusted return characteristics of hedge funds using various hedge fund investment styles, including long/short equity, global macro, market neutral, eventdrive, fixed income arbitrage, and emerging markets.”

Goals of the fund according to additional fund literature include seeking a “low correlation to equity market,” “intra-day liquidity,” which is likely an understated benefit of this and other “Hedge Fund ETFs” in terms of how they compare head to head with actual hedge fund investments which are typically subject to lock-ups and rigid rules in terms of minimum holding periods for investors.

Other “goals” are “seeks performance similar to overall hedge fund universe” as well as “no manager-specific risk”, which may resonate with most that are familiar with the tendency of some hedge fund managers to be streaky.

To date, the fund is approaching $700 million in assets under management, while averaging about 123,000 shares traded daily (typically a sign that a fund is not a high turnover, “trading” type product but more of a buy and hold/allocation type position for those that buy it).