IndexIQ, the Rye Brook, New York-based fund provider known for its alternative strategies, is rolling out Thursday, Oct. 4, its latest take on hedge fund replication, with an equities ETF that employs a market-neutral strategy.
The IQ Hedge Market Neutral Tracker ETF (NYSEArca: QMN) is the first ETF to serve up a broad multi-asset class 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 is set to cost 0.99 percent in annual fees, which includes a 0.75 percent expense ratio.
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.
“Market neutral is one of the biggest of all hedge fund strategies in terms of assets,” Index IQ’s head Adam Patti told IndexUniverse. “Given all the uncertainties in the market right now, this is the perfect time to be launching this product.”
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,” added Britt.
QMN is part of a group 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 QuantShares ETFs are different from QMN in the fact that they focus their exposure on a specific factor rather than being broad in scope, Patti noted.
"They are great trading instruments, but QMN is designed more as a core investment strategy," he said.
The latest filing, dated Aug. 27, was posted on IndexIQ’s website.