Unlike the mutual fund industry, where the line up of funds seem the same from fund house to fund house, in ETFland originality can make or break you. IndexIQ continues to build the niche of following hedge funds without actually owning hedge funds.
The Rye Brook, N.Y., company launched the IQ Hedge Macro Tracker ETF (MCRO) to track the index of the same name. The IQ Hedge Macro Index combines both Global Macro and Emerging Markets strategies, two strategies that historically have performed well after significant market dislocations. IndexIQ previously released the IQ Hedge Multi-Strategy Tracker ETF (QAI).
Global Macro hedge fund strategies look for investment opportunities around the globe where they can find market inefficiencies and dislocations amid a variety of asset classes including stocks, bonds, commodities, and currencies. Emerging Markets strategies attempt to identify investment opportunities in growing emerging market countries, including the BRIC nations of Brazil, Russia, India and China.
It looks like the fund seeks to get emerging market returns, a traditionally volatile market segment, with less volatility. So far in 2009, emerging markets equities have performed well.
The IQ Hedge Macro Strategy Tracker ETF doesn’t invest directly in hedge funds. Instead it uses data from hedge fund strategy returns. “It uses factor and quantitative analysis to replicate the returns and common risk factors of hedge fund investing strategies, using existing Exchange Traded Funds as the building blocks of the portfolio.”
Got that kids?
It doesn’t invest in hedge funds. It just tries to replicate their strategies by using existing ETFs. It’s a fund of funds. Here’s the portfolio on March 31, 2009. Scroll to the second page.
The typical hedge fund charges 2% of your assets and 20% of your profits. That 2% is still a nice chunk of change when your fund loses money. The MCRO ETF charges an expense ratio of 0.75%. Actual operating costs were 1.14%, so they’re cutting that to keep competitive with other ETFs.
IndexUniverse, which calls these ETFS “hedging strategies at bargain-basement prices” made a nice chart of the funds composition at the end of last month.