Daily ETF Watch: Alt Funds In The Works

A quartet of hedge fund and private equity strategies look to give investors access to the pros … sort of.

Reviewed by: Hung Tran
Edited by: Hung Tran

A quartet of hedge fund and private equity strategies look to give investors access to the pros … sort of.

A pair of issuers, IndexIQ and AdvisorShares, are looking to market hedge fund and private equity strategies in an ETF wrapper to retail investors who want to invest like the pros.

Alternative investments, especially hedge funds, are vehicles that dampen volatility when markets are trading downward but that will trail broader markets in a surging market environment a la 2013, when the S&P 500 surged more than 30 percent but the average hedge fund gained 7.4 percent.

On the contrary, hedge funds lost on average 18 percent in 2008 while the S&P 500 fell some 37 percent.

IndexIQ Advisors has put into registration two hedge fund ETFs—the IQ Hedge Long/Short Tracker ETF (QLS) and the IQ Hedge Event-Driven Tracker ETF (QED)—to give investors access to hedge-fundlike strategies via other ETPs.

The self-indexed funds will track the “beta” portion of the returns (i.e., that portion of the returns of hedge funds that are unrelated to manager skill) of hedge funds pursuing a long/short and an event-driven strategy, according to the regulatory filing.

The underlying index components generally provide exposures to:

  • U.S. large-capitalization equity
  • U.S. small-capitalization equity
  • Emerging market equity
  • Foreign equity (Europe, Australasia & Far East)
  • U.S. investment-grade debt
  • U.S. floating-rate bank loans

However, the funds do not invest in hedge funds, as the index does not include hedge funds as underlying index components.

QLS has net expense ratios of 1.10 percent, or $110 for every $10,000 invested, while QED’s expense ratio is 1.00 percent.


In addition, Index IQ has put into registration a private equity ETF: IQ Private Equity Tracker ETF. Similar to the hedge fund offerings, this proposed ETF will have exposure to the “beta” portion of the returns of private equity funds pursuing a strategy of U.S. public company buyouts.

The underlying index components will include primarily U.S. small-capitalization equities as well as ETFs, exchange-traded commodity pools and exchange-traded notes, according to the regulatory filing.

The regulatory paperwork included neither a proposed expense ratio nor a ticker.


Yet Another ALT ETF

AdvisorShares, a firm that only sponsors actively managed ETFs, has also put into registration an active multistrategy hedge-fundlike offering called the AdvisorShares Sunrise Global Multi-Strategy ETF (MULT).

It will employ a diversified multi-asset strategy to tap into numerous global markets using other ETFs, U.S. Treasurys, stock index futures, single-stock futures, fixed-income futures as well as over-the-counter currencies and currency futures.

During particularly active trading periods, the fund may be invested in up to 50 different markets and, during particularly quiet trading periods, it may be invested in only five or fewer different markets.

The fund has an expense ratio of 1.75 percent, or $175 for every $10,000 invested, for at least the first year of trading.


Hung Tran is a former staff writer for etf.com.