IndexIQ Hedge Fund ETF Nears Launch

September 28, 2012



IndexIQ, the Rye Brook, New York-based fund provider known for its niche strategies, is expected to roll out next week another hedge fund replication ETF, an equities fund with a market-neutral strategy.

The IQ Hedge Market Neutral ETF (NYSEArca: QMN) is a fund-of-funds portfolio that’s designed to replicate the returns of a group of hedge funds employing a market-neutral strategy.

To do so, the fund can own both long and short positions in equities while minimizing exposure to the “systematic components” of risk. Indeed, at the end of August, the proprietary index underlying the strategy tracked a varied basket of assets that included short-term bonds, broad bonds, international equity and currencies.

QMN, which is set to have a total annual fee of 0.99 percent, including a 0.75 percent expense ratio, could be launched as soon as Oct. 4, according to a company representative. However, that date is tentative and could be changed.

Market-Neutral Strategies

Market-neutral strategies strive for zero beta—or market—exposure by focusing on assets that show low correlation to the broad stock market and other risk factors such as economic sectors or industries, market capitalization and country exposure, the company said in a filing submitted to U.S. regulators detailing the fund.

“Market neutral strategies that effectively neutralize the market exposure are not impacted by directional moves in the market,” it said.

This type of methodology isn’t necessarily about downside protection or even outsized returns, but “it aims for modest but steady returns over time regardless of market conditions,” IndexUniverse ETF analyst Paul Britt said.

“Another way to describe its goal is portable alpha (alpha without beta)—a slight bit of outperformance without the market exposure,” said Britt.

QMN is the last of a trio of hedge fund replication strategies IndexIQ filed for back in 2008. The IQ Hedge Multi-Strategy Tracker ETF (NYSEArca: QAI) and the IQ Hedge Macro Tracker ETF (NYSEArca: MCRO) were launched in 2009.

The fund will also join a roster of seven QuantShares market-neutral ETFs that isolate different factors such as momentum, size and value.

The latest filing, dated Aug. 27, was posted on IndexIQ’s website. The company first filed to market the fund in 2008.


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