New ETFs Allow Investors to Build their Own Hedge Fund Strategies

New ETFs Allow Investors to Build their Own Hedge Fund StrategiesIndexIQ has launched two new alternative ETFs that, when combined with the firm’s existing products, will allow individual investors to “build their own hedge fund strategy.” The two new funds are the IQ Hedge Long/Short Tracker ETF (QLS) and the IQ Hedge Event-Driven Tracker ETF (QED), both of which launched on March 24.

By adding long/short equity and event-driven ETFs to its existing lineup of products, IndexIQ now offers investors exposure to each of the major hedge fund categories: long/short equity, event-driven, market neutral, and global macro.

The IQ Hedge Market Neutral ETF (QMN) and the IQ Hedge Macro Tracker ETF (MCRO) both have multiple years of performance under their belts, with QMN having launched in October 2012 and MCRO getting its start back in June 2009. IndexIQ also manages several other alternative ETFs, including the IQ Merger Arbitrage ETF (MNA), the IQ Real Return ETF (CPI), and the immensely popular IQ Hedge Multi-Strategy Tracker ETF (QAI).

“By managing the weightings of the strategies we offer, an investor or advisor can create a portfolio with a wide range of risk-return characteristics, from conservative to moderate to aggressive,” said Adam Patti, IndexIQ’s CEO, in a March 24 statement. “That kind of flexibility in building a customized liquid alternatives portfolio has never before been available to investors of all types and sizes, and we are thrilled to be leading the way in bringing additional institutional-quality strategies and exposures to the broad investor universe.”

Each of IndexIQ’s “tracker” ETFs attempt to replicate a particular IndexIQ Hedge Fund Replication index. These indexes have been calculated live by IndexIQ since March 2007.

The IQ Hedge Long/Short Tracker ETF

The IQ Hedge Long/Short Tracker ETF (QLS) attempts to replicate the price and yield performance of the IQ Hedge Long/Short Index. The index itself seeks to replicate “the collective hedge funds pursuing long/short strategies,” according to the ETF’s fund page.

Long/short equity strategies involve buying and selling stocks and other equity-related securities, with the objective of profiting from price appreciation in the portfolio’s long positions, and price declines from the portfolio’s short positions. These strategies also diversify their risks by limiting their net exposure to particular sectors, regions, and market caps, and by focusing on “company-specific anomalies,” according to IndexIQ’s statement.

The IQ Hedge Event-Driven Tracker ETF

The IQ Hedge Event-Driven Tracker ETF (QLE) attempts to replicate the IQ Hedge Event-Driven Index, which itself attempts to replicate the universe of hedge funds pursuing event-driven strategies. For more information, visit the ETF’s fund page.

Like long/short equity strategies, event-driven strategies involve buying and short-selling securities, but specifically in anticipation of corporate events. One example of a “corporate event” is the acquisition of one publicly traded firm by another, which event-driven funds typically respond to by buying shares of the company to be acquired and short-selling shares of the acquirer. Since the share price of the acquired stock typically rises to near but less than the announced acquisition price, this creates a long/short “arbitrage” opportunity when (if) the transaction finally closes.

NYLIM Acquisition

Speaking of mergers and acquisitions, IndexIQ itself was acquired by New York Life Investment Management (NYLIM) in a deal that was announced in December 2014 but isn’t expected to close until next month. The transaction is expected to bring together NYLIM’s “powerful global asset management franchise and distribution platform” with IndexIQ’s proven ability to launch sophisticated alternative ETF products,” according to the press release.

“We’re very excited to be launching these new funds just as we are about to embark on the next chapter in the history of IndexIQ,” said Mr. Patti. “NYLIM brings world-class expertise and distribution capabilities to bear for all of the managers with which it works, and we couldn’t be more pleased to be adding to our offerings and starting our relationship with fantastic momentum.”

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