AlphaClone, a San Francisco-based firm that says it enables
investors to "clone" what top investment managers are doing,
together with Exchange Traded Concepts, today rolled out a fund
that invests directly in the equity positions of hedge funds,
serving up what it calls alternative alpha. This is the firm's
first ETF.
The AlphaClone Alternative Alpha ETF (NYSEArca:ALFA) is a first
of a kind because unlike other hedge fund replication strategies
such as IndexIQ's Hedge Multi-Strategy Tracker ETF (NYSEArca:QAI)
and the ProShares Hedge Replication ETF (NYSEArca:HDG), ALFA is
true portfolio replication, while QAI and HDG are beta factor
replications.
What that means is that ALFA owns the same portfolio that
top-rated managers own, capturing the alpha potential and the long
positions chosen by these managers, while QAI and HDG replicate the
statistical quality of returns of an index of hedge fund managers.
ALFA comes with an annual expense ratio of 0.95 percent.
ALFA should fill a need many investors have for a liquid
alternative within their hedge fund allocations as a way to protect
themselves in times of weak market action. Often, liquidity means
giving up alpha, but this new fund should serve up both,
AlphaClone's Chief Executive Officer Mazin Jadallah told
IndexUniverse.
"ALFA is the first ETF to invest directly in the equity position
of hedge funds, and is a good alternative to fund-of-funds,"
Jadallah said. "This product gives liquidity without giving up
alpha potential."
The portfolio, which focuses on mitigating downside volatility
and reducing overall market correlations, can be anywhere from 100
percent long-selecting long positions from hedge funds' public
disclosures-to as much as 50 percent short, depending on market
volatility targets the methodology stipulates.
For instance, if the S&P 500 Index closes below its 200-day
moving average at the end of any month, ALFA turns to a
market-hedged position-it goes short-to seek positive returns while
offsetting the long exposure to that index.
The portfolio is equal weighted, but also has an "overlap bias,"
meaning if more than one of the hedge fund managers included in the
mix own a certain stock, that stock will be represented more than
once in the mix. The portfolio rebalances quarterly.
Year-to-date, the index benchmarking ALFA-the rules-based
AlphaClone Hedge Fund Long/Short Index-is up 2 percent. By
contrast, year-to-date, IndexIQ's QAI is only marginally up, while
ProShares' HDG is down 2 percent. Those latter performance numbers
look even redder in a 12-month chart.
ALFA is the second ETF to turn to Exchange Traded Concepts (ETC)
for its low-cost, private-label ETF platform, the same structure
behind the Yorkville High Income MLP ETF (NYSEArca:YMLP).
ETC serves as investment advisor to the fund.
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