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

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

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