With the S&P 500 experience the longest bull market in history and breaking the 2,900-point milestone, the capital markets are certainly reigned by the bulls, but what strategies should investors use when the bears regain control or the market plateaus?
Rather than implement one strategy based on current market environs, investors can use a one-size-fits-all exchange-traded fund that mimics hedge fund strategies with the IQ Hedge Multi-Strategy Tracker ETF (NYSEArca: QAI).
QAI seeks investment results that correspond generally to the IQ Hedge Multi-Strategy Index, which includes investments in underlying funds that meet IndexIQ’s rules-based methodology. The goal is to mirror the risk-adjusted return characteristics of hedge funds by incorporating various hedge fund investment styles–long/short equity, global macro, market neutral, event-driven, fixed income arbitrage and emerging markets.
Related: Director of IndexIQ Research Discusses Fixed Income Innovations
By using a multi-strategy methodology, QAI can thrive in a market environment whether the bulls or bears are reigning. This speaks to the adaptability of QAI that Salvatore Bruno, Chief Investment Officer of IndexIQ, describes as a “mostly independent way of deriving returns from various types of risks in all markets, as an absolute return expectation should act.”
While QAI won’t thrive in a raging bull market like the current run compared to unfettered exposure to the S&P 500, it can meld with an investor’s portfolio if a market drawdown were to occur if the said investor is willing to assume the risk associated with multiple strategies.
“Taken in isolation, QAI cannot keep up with a pure-equity exposure like the S&P 500 in a bull market like the environment we are currently experiencing,” said Bruno. “What most people have difficulty understanding what Multi-Strategies are, they are, quite literally, a collection of various strategies, or risks.
“Each of those risks provide an expected return for holding the risk. Some of the many risks include domestic and/or international market risks, duration risk, volatility risk, currency risks, and various types of long/short arbitrage risks. Continued low volatility, for example, could provide negative returns for the volatility risk exposure. The bull market we have witnessed since 2009 has shown that the market and duration exposures have been some of the best performers per unit of volatility, of which a multi-strategy would only have a small piece. In market drawdowns, many of the other types of risks provide the strategy’s return, which offset the traditional market and duration exposures and benefit the investor.”
The introduction of QAI in 2009 has given investors access to an investment space that was typically relegated to only high-net worth individuals or institutions. With the transparency and liquidity of an ETF wrapper that incorporates multiple hedge fund strategies, QAI opens up the arena to all types of investors.
“QAI has democratized a broader group of hedge fund style-exposures to all investors, and therefore is suitable for anyone looking for a low-cost, transparent, liquid, and tax-efficient approach to providing a level of exposure that is beyond single hedge fund manager exposures, to diversify a portfolio across many different types of risk premia,” said Bruno.
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