Liquid Alternatives: How Investors Should Handle Complex Liquid Alt ETFs

May 27, 2020 | Liquid Alternatives, News
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Here are the key takeaways from etf.com’s interview with Sal Bruno, chief investment officer of IndexIQ.

Bruno’s views on the challenges facing the liquid alts ETF segment, and investors’ difficulties with the inherent complexity of its strategies (etf.com):

Liquid alts:

  • Institutions understand the ‘why’ of liquid alternatives
  • Retail investors, on the other hand, need to be educated more on ‘how to use’ rather than ‘how it works’
  • The industry needs to establish the need and use case of liquid alternatives to improve adoption
  • Since 2007/08 it’s been difficult to sell these instruments because equity markets were doing very well
  • In the virus meltdown, however, people could see how liquid alternatives cushioned the fall and mitigated risk
  • [On J.P. Morgan (NYSE: JPM) closing its liquid alts ETFs] – “To see one competitor dropping out might be taken as a sort of indictment against liquid alternatives? I don’t think that it is.”
  • On IQ Hedge Multi-Strategy Tracker ETF (NYSEARCA: QAI) – We try to make it as pure a replication play as we can. And in doing so, we try to deliver a consistent return, not necessarily to outperform. It’s more of an all-weather type of hedge vehicle.
  • To investors on strategy complexities – Ask what is it trying to do? What are the key drivers of the allocation? What are the exposures? How they’re going to impact the portfolio? “Just knowing what you own.”
  • Liquid alternatives within the current “unprecedented” environment –
    • They are a range of potential solutions; due diligence is important
    • Not every liquid alt is appropriate for every stage of every cycle
    • Understand the role that different types of liquid alts can play

Related Story:     RIP [60:40]. Liquid Alts Solve the New Equation                                              

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