Hedge Fund Pro Makes the Case for Alternatives in ETF Wrapper

Hedge Fund Pro Makes the Case for Alternatives in ETF Wrapper

Former Bridgewater Associates executive Bob Elliott is hoping that investors are thirsting for hedging strategies.

Wealth Management Editor
Reviewed by: etf.com Staff
Edited by: Mark Nacinovich

Bob Elliott is hoping that investors and financial advisors are willing to zig while the rest of the market zags. 

That is essentially the case one must make whenever pitching alternative investment strategies at times when the broad markets are basically running smoothly. 

Elliott, who spent nearly 15 years as deputy chief investment officer at the hedge fund shop Bridgewater Associates LP, is bringing that expertise to the ETF business with one fund up and running and eight more filed with the Securities and Exchange Commission

Elliott co-founded Unlimited last year to bring hedge-fund strategies to the masses for a “quarter of the fees and half the taxes.” 

The Unlimited HFND Multi-Strategy Return Tracker ETF (HFND) employs artificial intelligence to manage a long-short portfolio of between 30 and 50 underlying exchange-traded funds and futures contracts designed to replicate the returns of the hedge fund industry gross of fees. 

HFND, which charges 1.03%, has grown to $40.6 million since its October 2022 launch, and Elliott has high hopes for the strategy and the various sub-strategies awaiting SEC approval. 

The fact that HFND is down 2.5% so far this year, compared with a 10.6% gain for the SPDR S&P 500 ETF (SPY) over the same period, doesn’t faze Elliott, who argues that it is an example of diversification. 

Hedge Fund Results in an ETF 

“We use machine learning to infer positions hedge fund managers have, and the technology is working as expected,” he said. “Hedge funds have been conservatively positioned over the course of the year.” 

While financial advisors are already on record making the case for hedging macroeconomic and geopolitical risks, it has historically been a tough sell to get clients to support strategies with higher fees and lagging performance.  

“The sophisticated advisors we talk to understand that there’s good reason why hedge funds, over time, outperform index investing,” Elliot said. “But that doesn’t mean it’s the case over any six-month period.” 

For starters, alternative investments come in all shapes and sizes, as is illustrated by the range of returns among alternative ETFs tracked by etf.com. 

For example, this year through October, the four best performing alternative strategy ETFs gained between 36.2% and 76.7%, while the four worst performers logged declines of between 58.8% and 88.7%. 

But Elliott isn’t trying to shoot out the lights with leverage or shorting strategies. He is just trying to reproduce the aggregate returns of a diverse category of money managers who typically charge a 2% management fee and take 20% off the top of the returns.  

“We’re different because we’re looking at a diversified set of six strategies,” he said. “The 2-and-20 businesses are great for the manger and not that great for the investors because the mangers take all the alpha in fees.” 

Contact Jeff Benjamin at [email protected] and find him on X at @BenJiWriter     

Jeff Benjamin is the wealth management editor at etf.com, responsible for coverage related to the financial planning industry. This includes writing, hosting podcasts, webinars, video interviews and presenting at in-person events.

Jeff is a veteran journalist with more than 30 years’ experience covering the financial markets. He has won more than two dozen national and regional awards for his reporting. He most recently worked as a senior columnist at InvestmentNews where he wrote about investment products and strategies, as well as the broader financial planning industry. Prior to that, Jeff worked as an analyst at Cerulli Associates where he researched and wrote reports on the alternative investments industry. Jeff also worked as a money management reporter at Dow Jones Newswires, where he covered the mutual fund industry.

Based in North Carolina, Jeff is a former Marine and has a bachelor’s degree in journalism from Central Michigan University.