hedge fund ETF
debuted today and with it may come valid questions regarding just
how beneficial ETFs that replicate hedge fund strategies are to
The hedge funds tracked by
Hedge Fund Research
are up just 2.3 percent this year. Over the last five years the
Hedge Fund Research Index has an annualized return of negative 0.6
percent, about in-line with the S&P,
according to Breakout on Yahoo Finance
Translation: Owning the SPDR S&P 500 (NYSE:
) this year would have proven to be a better bet than the average
hedge fund and owning SPY over the past five years would have at
least been cheaper. Those factors beg the question: Are hedge funds
ETFs, often home to high fees and complex strategies, really worth
the hassle for investors?
To be fair, each hedge fund ETF needs to be considered on its
own merits. Here are some that may help clear up the mystery
surrounding these esoteric exchange-traded products:
IndexIQ Hedge Multi-Strategy Tracker ETF (NYSE:
) QAI tracks an index that attempts to replicate the risk-adjusted
return characteristics of hedge funds using various hedge fund
investment styles, including long/short equity, global macro,
market neutral, event-driven, fixed income arbitrage and emerging
markets, according to IndexIQ.
At its core, QAI is an ETF fund of funds because most of its
holdings are other ETFs. That lineup includes familiar names such
as the iShares iBoxx $ Investment Grade Corporate Bond ETF (NYSE:
), the Vanguard Total Bond Market ETF (NYSE:
) and the iShares MSCI EAFE Index Fund (NYSE: ).
QAI debuted not long after the market bottom of March 2009 and
has returned nearly 12 percent since then. The rub is SPY has
surged 72 percent since QAI's debut and QAI charges 1.06 percent
per year. Still, QAI has been one of the better-performing and
easier-to-understand hedge fund ETFs.
IndexIQ Hedge Macro Tracker ETF (NYSE: ) The IndexIQ Hedge Macro
Tracker ETF tracks an index that attempts to replicate the
risk-adjusted return characteristics of a combination of hedge
funds pursuing a macro strategy and hedge funds pursuing an
emerging markets strategy, according to IndexIQ.
Like QAI, most of MCRO's holdings are other ETFs, including LQD
and the iShares Silver Trust. Oddly enough, MCRO holds both the
iShares MSCI Emerging Markets Index Fund (NYSE: ) and the Vanguard
MSCI Emerging Markets ETF (NYSE: ).
Not to take anything away from MCRO, which has jumped 10 percent
since its June 2009 debut, but VWO has surged 25.5 percent over the
same time. MCRO is also pricey at almost 1.1 percent per year.
AlphaClone Altertnative Alpha ETF (NYSE: ) The AlphaClone
Altertnative Alpha ETF is new (it debuted in June) and not all that
complex. Passively managed, ALFA's index ranks hedge funds and
institutional investors based on the efficacy of replicating their
publicity disclosed positions, according to AlphaClone. ALFA's
top-10 holdings currently include Apple (NASDAQ: ), Google (NASDAQ:
), PepsiCo (NYSE: ) and Intel (NASDAQ: ).
ALFA is not cheap at 0.95 percent per year, but AlphaClone
makes a compelling case for its index
. That is to say, ALFA could actually outperform SPY going
iShares Diversified Alternatives Trust (NYSE: ) iShares comes
right out and says on its web site that ALT "is not a standard
ETF." ALT is structured as a trust and is not an investment company
registered under the Investment Company Act of 1940. ALT's
objective is provide exposure to asset classes with low
correlations to traditional fare. That really
means futures contracts
ETFs heavy on futures are usually pricey and often disappoint in
terms of performance. That is the case with ALT, which charges 0.95
percent per year and has lost one percent since its 2009 debut.
For more on ETFs, click .
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