Global X, the New York-based ETF issuer best known for its
innovative China sector and hard asset ETFs, announced plans to
further expand its lineup with four products. In the
SEC filing
, the company revealed initial preparations for four hedge fund
ETFs, targeting various segments of the in-focus market (see
Does Your Portfolio Need A Hedge Fund ETF?
).
These four ETFs look to be a little outside the company's
wheelhouse of internationally focused products, but could see
investor interest from those looking to match popular strategies
being undertaken by some of the investment industry's most famous
personalities. While a great deal of details were not
released-expense ratios and ticker symbols were not available-we
have highlighted some of the key points from the filing below:
Top Activist Investor Holdings ETF
This proposed ETF looks to play on 'activist investors' or those
who buy up a large quantity of shares in hopes of turning
around/making huge changes in a company. This technique looks to
unlock hidden value in a firm and can often times lead to gains for
most investors in a security. The strategy has been popularized by
a number of investors including, most famously, Carl Icahn (read
Three Outperforming Active ETFs
).
The ETF looks to implement this strategy by tracking the top
equity positions held by a select group of these investors. This
group will be determined by Structured Solutions AG and will be
based on quarterly regulatory filings that these investors make
with the SEC. Like other products on this list, stocks will be
screened for liquidity, weighted equally, and adjusted on a
quarterly basis.
Top Hedge Fund Equity Holdings ETF
This proposed fund looks to track the top positions from a
number of the world's largest hedge funds. The positions will be
determined by looking at quarterly regulatory filings that these
organizations have to make with the SEC. Unfortunately, this
strategy could run into some issues as hedge funds can move
in-between the quarters and the fund could be powerless to match
these moves (see
HDGE: The Active Bear ETF Under The Microscope
).
Nevertheless, it could see inflows thanks to the popularity of
hedge fund managers' strategies and the lack of ways to play these
in basket form. Hedge funds are selected for inclusion in the
benchmark based on their size and how easy Global X can replicate
their positions. The index is calculated as a total return index
and is adjusted quarterly while the individual securities are
screened for liquidity and are also equally weighted in the
benchmark.
Listed Hedge Funds ETF
Arguably the easiest ETF to implement for the issuer, this ETF
looks to act as a basket of publically traded hedge fund firms. The
underlying index is calculated as a total return benchmark and the
component securities will be screened for liquidity and weighted by
market cap. This index will also be maintained by Structured
Solutions AG (see
ETFs vs. Mutual Funds
).
In terms of individual holdings the fund could have a wide
variety of choices to pick from. While this is pure speculation on
my part, the proposed fund could definitely include stocks such as
Greenlight Capital (
GLRE
)
, the
Blackstone Group (
BX
)
,
Fortress Investment Group (
FIG
)
, and
Och-Ziff Capital Management Group (
OZM
).
Granted, many of these aren't 'pure' hedge funds, they could still
find their way into Global X's proposed product nonetheless as the
crop of pure publically traded hedge funds is pretty small
depending on the definition.
Top Value Guru Holdings ETF
This proposed product looks to track top equity positions from a
select group of the world's top value investors, as defined by
Structured Solutions AG. Much like other funds on this list, the
hedge fund ETF will be calculated as a total return benchmark and
will be adjusted quarterly. Also, the stocks are going to be
screened for liquidity and will be equally weighted as well (read
Five ETFs To Buy In 2012
).
Also, the actual stock picks will come from the quarterly
regulatory filings form these investors with the SEC, with the
index provider deciding which to include in the benchmark. Once
again, the filings will be a little stale but this seems to be less
of an issue in this proposed product thanks to the lower level of
trading that is inherent in value investing.
Hedge Fund ETF Competition
While all four of Global X's proposed funds look to be first to
market ETFs in their respective corners, they could still see a
great deal of competition from a variety of hedge fund ETFs already
on the market. Easily the most competition will come from IndexIQ
and their lineup of hedge fund tracking ETFs.
The most popular ETF in this category is the company's
IQ Hedge Multi-Strategy Tracker ETF (
QAI
)
which has just under $200 million in AUM. Currently, the product is
heavily exposed to bonds, allocating most of its portfolio to fixed
income ETFs of the short-term variety.
Beyond this, IndexIQ also has the
IQ Hedge Macro Tracker ETF (
MCRO
)
which has a respectable $40 million in AUM. This product is also
heavy in bonds although it also has decent exposure to currencies
and gold as well (see the
Zacks
ETF Center
for more info about ETF investing).
Lastly, there is also ProShares'
Hedge Replication ETF (
HDG
)
, a product that is relatively new and hasn't managed to attract a
great deal of assets or volume as of yet. Much like its
counterparts, this fund is also focused on short term bonds
although it does have a significant component in short S&P 500
exposure as well.
Seemingly, Global X's funds will be solely focused on equities,
suggesting that investors who want more of a stock focus in their
hedge fund investing could be persuaded to look at their products
over some of IndexIQ's entrants in the space which are currently
focused on fixed income. Given this, and the increased acceptance
of hedge fund styles for ETF portfolios, Global X could definitely
have a few winners on its hands if it can successfully negotiate
the SEC's regulatory hurdles and bring these hedge fund ETFs to
market.
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