With volatility shaking up the markets, investors and financial advisors may consider including some alternative investments into an investment portfolio to help smooth out the ride. That includes reviewing the IQ Hedge Multi-Strategy ETF (NYSEArca: QAI).
QAI provides a diversified mix of alternative strategies, including multiple hedge fund investment styles, such as long/short equity, global macro, market neutral, event-driven, fixed income arbitrage and emerging markets. [Alternative Investment ETFs Are Increasingly Popular]
QAI can also provide portfolio protection if interest rates start rising again. Looking at back-tested historical data during 11 different rising rate periods, QAI’s strategy has outperformed the Barclays U.S. Aggregate Bond Index in all of those periods. The ETF is able to rebalance its exposure across the broad hedge fund strategies in response to the changing market conditions.
This type of ETF provides retail investors with hedge fund-esque strategies, without the costs associated with hedge funds. QAI, for instance, tries to reflect the performance of a customized index that tracks the risk-adjusted return characteristics of hedge funds and comes with a 0.75% expense ratio. [Hire Your Own Hedge Fund With This ETF]
QAI’s underlying “utilizes various hedge fund strategies, such as global-macro, market-neutral and event-driven strategies, and includes taking long and short equity positions and using fixed-income arbitrage and emerging market investments. The fund was launched by IndexIQ in 2009. It has an expense ratio of 0.75% and offers a dividend yield of 1.35%. As of 2015, its annualized return since inception is 4.24%. The fund’s primary holdings are largely investments in other ETFs, including the PowerShares Senior Loan Portfolio ETF, the Vanguard Short-Term Bond ETF and the iShares MSCI EAFE ETF,” according to Investopedia.
Investors should be aware that the ETF does not solely invest in fixed-income assets. QAI’s current holdings also include a spattering of currencies, emerging market small-caps, developed EAFE small-caps, real estate investment trusts and some U.S. stocks.
Potential investors should be aware that these types of alternative investments are not meant as growth strategies to generate outsized returns in their portfolios. In reality, these strategies are doing exactly what they were made for, diminishing volatility. Consequently, in bullish market conditions, the strategies may underperform, but if the markets turn, this type of alternative strategy can shine. [Hedge Market Risks with Alternative Investments, ETFs]
IQ Hedge Multi-Strategy ETF
The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.