Questioning how much more equities can rise before a significant correction, some investors are turning to alternative exchange traded fund strategies in an attempt to manage volatility.
So-called alternative or liquid alt funds that track long/short and market-neutral strategies help investors diversify portfolios and dampen volatility, reports Eric Balchunas for Bloomberg.
According to Morningstar data, alternative ETFs have been steadily attracting inflows, and now hold about $1.4 billion in assets, about double in size year-over-year.
Investors who are use to growth investments that generate outsized returns will not be impressed by these types of offerings. Instead, hedge-fund-like strategies are intended to diversify, or like the the moniker suggests, hedge stock and bond exposure, providing returns that don’t mirror the performance of traditional equity and fixed-income assets.
The IQ Hedge Multi-Strategy ETF (NYSEArca: QAI), with $770.1 million in assets, is the largest hedge fund strategy ETF. The ETF tries to reflect the risk-adjusted return characteristics of hedge funds through various hedge fund investment styles, such as long/short equity, global macro, market neutral, event driven, fixed-income arbitrage and emerging markets. The fund has a 0.94% expense ratio. QAI is up 2.4% year-to-date and generated an average annualized return of 3.7% over the past five-years. On a risk-adjusted return basis, QAI is up 0.41%, compared to the S&P 500’s 0.36%, adjusting for volatility.