IndexIQ, the leading New York-based issuer of alternative index-based ETFs, has announced the launch of IQ Hedge Market Neutral Tracker ETF (QMN), a fund that provides investors exposure in a range of liquid and transparent market-neutral hedge funds by investing in a range of ETFs.
QMN tracks the IQ Hedge Market neutral Index, a proprietary benchmark that seeks to replicate the risk-adjusted return characteristics of a basket of hedge funds following a market neutral investment strategy.
Market neutral hedge funds go both, long and short, on different asset classes in order to minimize exposure to systematic risk and give the product a low correlation to the broad equity market.
At the time of launch, assets were heavily concentrated in bond ETFs with BSV and SHY accounting for more than 47 percent of total assets. As of August 31, the index was heavily biased towards bonds with 58.7 percent of the benchmark allocated to short-term bonds, 16.2 percent allocated to broad bonds, 5.1 percent allocated to convertible bonds and 4.3 percent allocated high-yield bonds. Only 12.8 percent was allocated to international equities while the remaining 1.98 percent was invested in currencies.
A market neutral strategy seeks to have zero beta to one or more systematic risk factors that includes, but is not limited to, the overall market (as represented by the S&P 500 index), different geographic regions and countries and diverse industries and market segments. A successful market neutral strategy effectively neutralizes directional market movements.
QMN’s fact sheet claims the market neutral investment strategy of the underlying index has resulted in a beta of only 0.25, suggesting the benchmark’s returns are weakly correlated with the S&P 500 index.
Although the index underperformed the S&P 500 in the longer term, it experienced much lower maximum drawdown and made a faster recovery than the broad market.
The fund has a total expense ratio of 0.99 percent.
There is no back data available due to the newness of this ETF, but I will revisit QMN in a few months to see how it the stacks up against a vartiety of indexes and ETFs.
Disclosure: No holdings