New Hedge Fund ETFs Are On the Way

New hedge fund ETFs are on the way, and not a moment too soon.

IndexIQ has filed to launch the first family of ETFs designed to emulate the performance of hedge fund strategies. The funds, branded "IQShares," will use portfolios of other existing ETFs to synthetically replicate the return characteristics of five different hedge fund strategies:

IQ Hedge Multi-Strategy Composite
IQ Hedge Global Macro
IQ Hedge Long/Short Equity
IQ Hedge Event-Driven
IQ Hedge Market Neutral

Index Universe notes that the funds will hold a changing portfolio of other ETFs, including equity, fixed income, commodities and leveraged/inverse ETFs. Together, the portfolios will aim to "generate total return and volatility results … that are substantially similar" to the publicly reported returns of hedge funds following a particular investment approach. The prospectus warns that the funds will try to deliver these returns on a long-term basis; short-term results may vary.

It will be interesting to see what kind of fees these ETFs will have given their fund of funds approach.

Comments

[Odd Lot:]

Wow, interesting new product, I'm curious to see how they develop. I find it hard to believe that a hedge fund ETF made up of a blend of other ETFs is going to emmulate a hedge fund, that approach seems like it would water the return down pretty badly. I guess time will tell.

I can't believe how many strategies ETFs follow already, this was such a simple idea and product when they first rolled out. Most only followed the broad indexes. It's getting harder and harder to keep ETF educational material up-to-date. It will be tough updating material over the next few years but hopefully some of these new strategy and hedge fund based ETFs will be worth the effort.

2008 Aug 18 07:16 PM

[Alan Young:]

"I can't believe how many strategies ETFs follow already, this was such a simple idea and product when they first rolled out. "

That's a good starting point for another discussion: ETF assets and liquidity. Currently, 40% of ETFs (on the Schwab screen) trade less than 15,000 shares daily. If you ever want to sell those shares in a hurry--good luck! The more products and the more specialization, the fewer buyers. So even if the concept is great, even if the returns are good, it might be a risky investment.

2008 Aug 19 06:47 PM

[User 247580:]

Wow, interesting new product, I'm curious to see how they develop. I find it hard to believe that a hedge fund ETF made up of a blend of other ETFs is going to emmulate a hedge fund, that approach seems like it would water the return down pretty badly. I guess time will tell.

I can't believe how many strategies ETFs follow already, this was such a simple idea and product when they first rolled out. Most only followed the broad indexes. It's getting harder and harder to keep ETF educational material like the guide at www.money-and-investin... up-to-date. It will be tough updating material over the next few years but I hopefully some of these new strategy and hedge fund based ETFs will be worth the effort.

Cheers,
Odd Lot

2008 Aug 21 07:41 PM