The latest company to take advantage of Exchange-Traded
Concept's 'turnkey' ETF service appears to be Milwaukee-based
AlphaClone. The company recently launched a new product that is the
first of its kind to replicate disclosed equity positioned held by
established hedge fund managers, the AlphaClone Alternative Alpha
In essence, the firm looks to give every day investors the
ability to capture alpha from long positions in these investments
while also protecting against market downturns via a dynamic hedge.
The product currently trades under the symbol ALFA and charges
investors 95 basis points a year for its services (read
Mid Cap ETF Investing 101
AlphaClone Strategy In Focus
The new ETF looks to track, before fees and expenses, the
AlphaClone Hedge Fund Long/Short Index.
This benchmark tracks
the performance of US-traded equities to which hedge fund and
institutional investors have disclosed significant exposure. This
process is done via what the company calls the 'Clone Score'
methodology which looks to evaluate the ability of AlphaClone to
replicate the positions, selecting firms to match that are scored
highly in this regard.
This figure is recalculated twice a year and also includes how
much alpha following a certain manager's position generates over a
time period. With this approach, AlphaClone looks to provide a
consistent strategy to manager and equity selection in its
The Complete Guide to Preferred Stock ETF
Beyond this, investors should also note that the index also
employs a hedging mechanism which looks to dull the impact of long
bear market periods. Over time, this can range from being 100% long
to a 50% long/50% short strategy, hoping to eliminate some level of
market risk from the portfolio.
Lastly, investors also should realize that the portfolio looks
to rebalance on a quarterly basis. Securities are equally weighted
but if a number of top ranked managers have the same stock in their
portfolio than that security will receive an outsized weight in the
index and thus the ETF portfolio (read
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At time of writing, this produced a diversified portfolio
although many securities were concentrated in the large cap
segment. Top holdings include Apple, Express Scripts, Simon
Property Group, Intel, and Pepsi.
This strategy could prove popular for investors seeking a
hedge-fund like strategy with the relative cheapness and liquidity
that comes in an ETF. Furthermore, the index methodology may be
appealing to some as it helps to keep costs lower than what many
investors see in actively managed ETF products.
Nevertheless, while the product may be the first to market in
the space, it is not without competition in the broad hedge-fund
ETF sphere. In particular, ALFA could face some stiff competition
These two products, from IndexIQ, look to give investors broad
exposure to hedge fund-like strategies in ETF form as well.
However, instead of tracking institutional investors and asset
inflows, these products engage in a more global strategy which
looks to apply a variety of hedge fund techniques (see
Does Your Portfolio Need A Hedge Fund ETF?
This approach has proven to be quite popular with many investors
as combined, the two ETFs have amassed nearly $250 million in
assets. This has helped both of the products to amass solid trading
volumes, ensuring that costs in these products are less than
Still, for investors seeking to match hedge fund techniques in
ETF form without using a fund-of-funds approach, ALFA is one of the
best options available. While Global X is also fresh out with some
hedge fund tracking ETFs of its own, ALFA could prove to be an
interesting pick for those intrigued by the company's proprietary
CloneScore and how this technique can be used in ETF form.
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(ALFA): ETF Research Reports
IQ-HEDGE MCR TR (MCRO): ETF Research Reports
IQ-HEDGE MUL-ST (QAI): ETF Research Reports
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