McCall’s Call: Sleeping Better With QAI

September 22, 2011

Right now might be the time to check out ETFs that mute all this crazy volatility.


The S&P 500 Index is down 10 percent for the year, making it tough for investors to swallow. What’s even harder to stomach is the gut-wrenching volatility along the way to those disappointing losses.

Matthew D. McCallThe average investor portfolio is typically long-only, and when not long, most portfolios will hold cash. Hedge funds on the other hand will almost always utilize their cash and often times use leverage in the direction they feel the market is moving.

For those interested in hedge-fund replication strategies, a number of ETFs are on the market to help calm investors’ nerves and lower daily price swings. So, I want to focus on those, including those that soften the blow of volatility by going both long and short.

Three particular ETFs come to mind that have different hedge-fundlike strategies, so let’s take a look at them.

Index IQ ETFs

The IQ Hedge Multi-Strategy Tracker ETF (NYSEArca: QAI) is designed to track an array of hedge-fund strategies that include long/short, global macro, market-neutral, event-driven, fixed-income arbitrage, and emerging markets.

By attempting to achieve this risk-adjusted return, QAI invests both long and short in various ETFs and other investment vehicles.

As of Sept. 9, the ETF was most heavily weighted in three bond ETFs: iShares iBoxx Investment Grade Corporate Bond ETF (NYSEArca: LQD), iShares Barclays Aggregate Bond ETF (NYSEArca: AGG) and Vanguard Total Market Bond ETF (NYSEArca: BND). The top three holdings make up 47 percent of the entire allocation of QAI. The ETF is down 1 percent for the year and charges an annual fee of 1.13 percent.

In the same family of funds is the IQ Hedge Macro Tracker ETF (NYSEArca: MCRO). It attempts to replicate a risk-adjusted hedge fund macro strategy and emerging markets strategy.

MCRO’s big three holdings are LQD, Vanguard MSCI Emerging Markets ETF (NYSEArca: VWO) and the iShares MSCI Emerging Markets Index Fund (NYSEArca: EEM). It also has exposure to precious metals and foreign bond ETFs. For the year, the ETF is down 4 percent, not including annual fees of 1.10 percent.


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