Is a Hedge Fund ETF For You? (QAI, EEM, AGG)

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No one has refrained from saying that there is beginning to be an ETF for almost every index or every strategy out there.  Now there is a hedge fund ETF.  Enter the IQ®Hedge Multi-Strategy Tracker ETF (NYSE Arca: QAI).

This new ETF seeks to replicate the returns of the IQ®Hedge Multi-Strategy Index, which was designed to capture the risk-adjusted return characteristics of the collective hedge fund universe using multiple hedge fund investment styles.  This strategy includes long/short equity, global macro, market neutral, event-driven, fixed income arbitrage, and emerging markets.

What gets interesting here is that it uses ETF’s in the ETF’s and gives intra-day liquidity, transparency, and lower fees than most hedge funds.   It uses a wide variety of liquid ETFs already in the market.  More importantly, this does not invest in actual hedge funds.

IndexIQ utilizes its unique Rules-Based Alpha™philosophy to design and build innovative investment products, combining the benefits of traditional indexing with the risk-adjusted return potential sought by the best active managers.

The IQ®Hedge Multi-Strategy Tracker ETF is also said to be the first in a planned series of alternative investment ETFs.  This ETF’s constituents are existing ETFs currently available in the marketplace.  IQ calls it essentially an ETF that is like a “fund of funds.”

The fund’s expense ratio will be 0.75%.  So no “2% and 20%” here.  But here is what you need to know.  The overall success of this ETF is likely going to be dependent upon two issues: its portfolio mix, which ultimately leads to its performance AND its liquidity and trading volume.  So far the trading volume has been light in the first 3 trading sessions, but not so light that traders can’t use it.

Here are the top ETF holdings:

iSHARES Barclays Aggregate (NYSE: AGG) 23.91 %
iShares Lehman Aggregate Bond 23.91 %
iShares Lehman 1-3 Year Treasu 18.31 %
ISHARES MSCI Emerging Markets Index ETF (NYSE: EEM) 11.04 %

More information can be found at