IndexIQ, the New York based asset manager that launched the world’s first liquid alternative exchange traded fund that replicated hedge fund strategies, recently unveiled another unique investment methodology to expand their offerings in the alternatives/multi-assets category.
The newly launched IQ Leaders GTAA Tracker ETF (QGTA) aims to match the performance of leading global allocation mutual funds.
QGTA tracks a proprietary index developed in-house, the IQ Leaders GTAA Index. The index, in turn, tries to replicate the performance of the 10 leading global allocation mutual funds based on fund performance and asset size. However, the new ETF does not invest in the mutual funds itself; rather it invests in a portfolio of highly liquid and low-cost ETFs which, when considered in entirety, replicates the aggregate performance of the mutual funds.
GTAA, or Global Tactical Asset Allocation, is an active portfolio management methodology that involves rebalancing constituent asset classes quickly to benefit from pricing anomalies or strong movements in different sectors across the globe.
Portfolio managers typically create value by exploiting short-term events and mostly focus on price trends and general market movements. In other words, QGTA is designed to behave like a fund-of-funds and offers the benefits of GTAA in an ETF wrapper for a tax-efficient and rules-based diversified solution.
Still, there’s no denying the complexity of the strategy that goes inside the new ETF. The underlying index must first identify the best performing mutual funds that are ‘leaders’ in their categories. This is achieved by assigning composite scores to each mutual fund based on a weighted average of three criteria: fund quality (40 percent weight) – as measured by multiple factors including long– and short-term performance and changes in key personnel; fund size (40 percent weight) – as measured by total assets under management; and fund performance (20 percent weight) – as measured by past 24 months total return. The top 10 funds constitute the ‘leaders’ and the average of their returns makes the returns of the ‘leaders’ series.
Next, correlations between liquid ETFs traded on major US exchanges and those of the series are calculated. IndexIQ also assigns a score to each ETF based on how closely the investment strategy of the fund matches to the methodologies of the ‘leaders’ series for mapping the performance of the mutual funds onto the ETFs. Finally, the firm uses a proprietary model to select a combination of funds to assign weights to each ETF in the portfolio. That’s a fairly complex strategy by every measure!
QGTA’s top holdings include Vanguard FTSE Developed Markets ETF (18.48 percent), iShares Core US Aggregate Bond ETF (15.92 percent), Vanguard Total Bond Market ETF (14.43 percent) and SPDR Barclays Convertible Securities ETF (10.18 percent).
The total annual fund operating expenses of QGTA is 0.60%.
Disclosure: No holdings