IndexIQ, the NY-based exchange-traded fund issuer known for its suite of liquid alternative investment products, recently expanded its unique offerings of hedge fund replication ETFs with the launch of the IQ Hedge Long/Short Tracker ETF (QLS) and the IQ Hedge Event-Driven Tracker ETF (QED). With the launch of QLS and QED, the firm’s hedge-fund replication product-count went up to six.
Both the funds follow index based fund-of-funds methodology and seek to replicate the risk adjusted returns of their respective hedge fund strategies by investing in other exchange-trade products.
The passively managed QLS tracks the performance of IQ Hedge Long/Short Index and is designed to reflect the collective long/short investment strategy, which is also the largest category of hedge funds in terms of asset size. As the name suggests, long/short strategy involves taking both long and short positions in equities in markets worldwide.
They may use leverage to boost returns and though, by definition, they are not market neutral, they generally seek to profit from greater returns on long positions than on the short positions.
The top five holdings include the PowerShares Senior Loan Portfolio (29.10 percent), iShares IBoxx $ Investment Grade Corporate Bond ETF (14.68 percent), iShares Russell 2000 Growth ETF (10.17 percent), SPDR S&P 500 ETF Trust (6.79 percent) and Vanguard Small-Cap Growth ETF (6.57 percent).
The Total Annual Fund Operating Expense of QLS is 1.10 percent.
QED, on the other hand follows the IQ Hedge Event-Driven Tracker Index, a benchmark intended to replicate the collective return characteristics of hedge funds pursuing an event-driven strategy.
Event driven funds strive to profit from unique opportunities available in the market including investing in such credit opportunities as distressed debts, leveraged loans or capital structure arbitrage situations, and event-driven equities such as holding company arbitrage, risk arbitrage and special situations including activist investors.
The top three holdings contribute more than 90% to QED and include SPDR Barclays Convertible Securities ETF (45.20 percent), Vanguard Total Bond Market ETF (23.03 percent) and iShares Core US Aggregate Bond ETF (20.55 percent).
The new products come at a time when the global economy is witnessing some turbulence with China suddenly losing momentum and Europe and Japan slowly getting their mojo back.
Volatility in both the equity and bond markets recently flared up as the dollar strengthened amid speculations about the timeline of the first US rate hike by the end of this year.
Investors looking to explore niche opportunities in the changed scenario at an affordable cost may consider the two new funds.
QED has a Total Annual Fund Operating Expense of 1 percent.
Disclosure: No holdings