ETFs Tracking Liquid Alts Outperform Traditional Hedge Funds

The actively managed LALT holds a combination of equities, along with financial future contracts, forward currency contracts and other securities. 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. Year-to-date, LALT was up 1.3%, ALTS dipped 1.2% and QAI was 0.4% higher.


Investors focus on specific strategies through targeted alternative ETFs. For instance, the First Trust Long/Short Equity ETF (NYSEArca: FTLS) and ProShares RAFI Long/Short ETF (NYSEArca: RALS) are two long-short strategies that take both long positions in U.S. equities and pare bets with short positions. FTLS was down 3.1% and RALS was 0.1% higher so far this year.

To capture the merger-arbitrage strategy, the Index IQ Merger Arbitrage ETF (NYSEArca: MNA), Credit Suisse Merger Arbitrage Index ETN (NYSEArca: CSMA) and ProShares Merger Arbitrage ETF (NYSEArca: MRGR) provide investors with a diversified approach to a group of takeover targets. The ETFs employ a type of alternative, “directional hedge fund strategy” called merger arbitrage. Specifically, the funds capture the spread or difference between a stock’s trading price before a deal is announced and its eventual takeover price. MNA rose 2.6%, CSMA added 0.1% and MRGR returned 1.9% year-to-date.

Additionally, the IQ Leaders GTAA Tracker ETF (NYSEArca: QGTA) and the AdvisorShares Morgan Creek Global Tactical ETF (NYSEArca: GTAA) both follow tactical asset allocation or event driven strategies that adapt to changes in the market environment. GTAA takes a discretionary macro approach in its global tactical portfolio. Year-to-date, QGTA dipped 2.5% and GTAA was up 1.0%.

Potential investors should also be aware that these types of investments are not meant as growth strategies to generate outsized returns in investment 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, alts can shine.