Bruno explained that QAI first starts off by identifying ETFs that represent asset classes driving hedge fund returns. The ETF would replicate the risk/return profiles of 6 distinct hedge fund strategies. The hedge fund strategies are then combined into one portfolio to maximize returns and minimize volatility.
Investors would pay also traditionally pay “2 & 20” to gain access to these hedge fund strategies to gain access to unique strategies that enhance the risk/return profile of their portfolios. However, some of the favorite hedge fund strategies are now available within ETFs, like QAI.
Additionally, investors can also select single styles, such as Index IQ Merger Arbitrage ETF (NYSEArca: MNA). MNA would capitalize on arbitrage opportunities through mergers and acquisitions activities. MNA also takes a systematic, rules-based investment approach, IndexIQ analyzed almost 13,000 Merger & Acquisition transactions over 10 years and yielded the “ideal” characteristics of M&A transactions in regard to profits to shareholders, which were distilled into the rules-based process that drives the IQ Merger Arbitrage Index.
John Davi, Founder and CIO of Astoria Portfolio Advisors, explained that investors can incorporate alternative strategies as risk management tools to de-risk a diversified portfolio during times of distress. For example, a portfolio may look something like 40% to 60% equities, 15% to 20% bonds and 15% to 20% alternatives, with cash used opportunistically. Davi also pointed out that many large institutions, such as U.S. education endowments, allocate significant assets into alternatives – high net worth investors would typically hold 78% stocks/bonds with 22% allocated to alternatives.
Financial advisors who are interested in learning more about alternative investment strategies can watch the webcast here on demand.