New ETF Tries To Replicate Hedge Funds

After getting the go-ahead from the Securities and Exchange Commission (SEC), IndexIQ is moving forward with an innovative new exchange traded fund (ETF).

The IQ Hedge Multi-Strategy Tracker (QAI) began trading today. IndexIQ analyzes publicly available hedge-fund performance data, then tries to match returns using ETFs and other liquid trading vehicles. The fund won’t invest in hedge funds. It has an expense ratio of 0.75%, says Joseph Checkler for Dow Jones Newswires.

IndexIQ has had luck with other hedge fund replication products, including the IQ Alpha Hedge Strategy Fund, a mutual fund that was down just 4.1% for the year, compared to an 18.2% loss in the S&P 500.

QAI will encompass a number of hedge fund strategies, including long/short equity, global macro and fixed-income arbitrage. Eventually, they’ll launch other ETFs that will invest in some of those individual strategies.

The index will be rebalanced monthly, says Murray Coleman for Index Universe. Adam Patti, chief executive of IndexIQ, says the fund will give investors a chance to capture the diversification benefits of hedge fund strategies without the cost.

If it’s successful, the fund could give hedge funds a run for their money, since they have a fee structure that critics have called exorbitant. Most actively managed hedge funds charge annual expenses of 2%, and many have another 20% in performance fees.

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