AdvisorShares Preps Hedge-Fundlike ETF

October 11, 2013

The ETF hopes to follow in the footsteps of IndexIQ’s QAI.

AdvisorShares, the actively managed exchange-traded fund shop, is prepping another ETF to add a hedge-fundlike strategy to its growing lineup of products at a time when the jury is still out on the effectiveness of such alternative ETFs and on actively managed ETFs in general.

The AdvisorShares Sunrise Global Multi-Strategy ETF will be listed on the Nasdaq exchange under the symbol “MULT” and 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, according to a regulatory filing.

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.

 

Hedge funds have become quite popular in the past generation, and sometimes with good reason. Some, like Paulson & Co., made a fortune by betting against the financial institutions during the run-up before the housing bust in 2008. But many went bust in the downturn, in part because their sky-high costs were out of step with investors rattled by the market crash.

As an example, New York-based currency hedge fund FX Concepts, a once formidable hedge fund managing $14 billion, will close shop over the next few weeks and return money to investors, according to the Wall Street Journal.

Still, there is an increasing number of ETF firms serving up hedge-fund replication strategies in an index ETF wrapper, the proposed MULT being the latest. The pioneer in the hedge fund replication space is IndexIQ’s Hedge Multi-Strategy Tracker ETF (QAI | C-65), which recently surpassed the $500 million mark.

The passive ETF dons a similar strategy to the MULT ETF and has returned 2.40 percent through Sept. 30, versus a 16.35 percent gain for the S&P 500.

QAI’s management fee is 0.75 percent, or $75 for every $10,000 invested. However, its total operating expenses amount to 0.94 percent, or $94 for every $10,000 invested after adding acquired fund fees, according to information posted on the fund’s website.

AdvisorShares did not disclose fees for its latest proposed offering.

AdvisorShares remains the only ETF sponsor solely focused on bringing active strategies to market, and so its fortunes are linked to overall perceptions of investor receptivity to actively managed exchange-traded funds.

Nearly all of the $1.566 trillion invested in U.S.-listed ETFs is in indexed strategies.

According to data from AdvisorShares, there is currently $14.57 billion invested in actively managed ETFs. Pimco is by far the biggest purveyor of active ETFs, with total active ETF assets of $8.55 billion, good for a 58.69 percent market share.

The firm’s $3.93 billion Pimco Total Return ETF (BOND) has fallen 2.7 percent this year through Oct. 9.

 

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