Advertisement
investing

ETFs Go After Hedge Funds

New exchange-traded funds sell short, invest in foreign currencies and engage in other esoteric strategies.

It was only a matter of time. Exchange-traded funds, which offer products for almost every conceivable investment niche, are now competing with hedge funds. This could be welcome news if you don’t have the big bucks normally required to invest in hedge funds and don’t want to pay their outrageous fees.

Advertisement - Article continues below

Hedge-fund ETFs don’t follow a simple formula. IndexIQ, the top sponsor of these kinds of ETFs, aims to replicate the returns of hedge funds by investing in other ETFs and futures contracts. Its IQ Hedge Multi-Strategy Tracker (symbol QAI) uses hedge-fund techniques, such as selling stocks short as well as owning them and seeking to take advantage of discrepancies in the prices of different kinds of bonds from the same issuer. IQ Hedge Macro Tracker (MCRO) tilts more toward emerging-markets stocks and will almost certainly be more volatile than the multi-strategy ETF.

The biggest ETF purveyor, iShares, has also gotten into the act. Its Diversified Alternatives Trust (ALT) holds futures contracts on commodities, currencies and interest rates, as well as on stock and bond indexes. Unlike most ETFs, Diversified Alternatives Trust is actively managed and does not track an index.

Fees for these new ETFs are either fair or high, depending on your perspective. The annual fee for the iShares ETF is 0.95%; the IQ ETFs charge 0.75%, although total costs are closer to 1.1% when you include the fees of the underlying ETFs. That’s better than the standard hedge-fund charge of 2% per year plus 20% of the gains, but a lot higher than most ETFs, some of which charge less than 0.1% annually.

Advertisement
Advertisement - Article continues below

Hedge-fund-mimicking ETFs are untested. The oldest fund offered by IndexIQ started in March 2009, and iShares launched its product in November. Until we see how these funds perform in different market environments, we suggest you steer clear of them. Instead, consider a seasoned hedge-fund-like mutual fund, such as Hussman Strategic Growth (HSGFX), or a merger-arbitrage fund (see How to Make Money on Mergers).

Advertisement

Most Popular

12 Tax Deadlines for July 15 (It's Not Just the Due Date for Your Tax Return)
tax deadline

12 Tax Deadlines for July 15 (It's Not Just the Due Date for Your Tax Return)

Between due dates for paying estimated taxes, IRA or HSA contributions, and other deadlines, there's more to do by July 15 than just filing your feder…
July 14, 2020
65 Best Dividend Stocks You Can Count On
stocks

65 Best Dividend Stocks You Can Count On

These 65 Dividend Aristocrats are an elite group of dividend stocks that have reliably increased their annual payouts every year for at least a quarte…
July 8, 2020
91 Top Dividend Stocks From Around the World
stocks

91 Top Dividend Stocks From Around the World

These 91 Dividend Aristocrats, from the U.S., Canada and Europe, are among the world's top dividend stocks for payout longevity and safety.
July 13, 2020

Recommended

10 Best Emerging Markets ETFs for a Global Rebound
Foreign Stocks & Emerging Markets

10 Best Emerging Markets ETFs for a Global Rebound

Emerging markets ETFs can inject growth into your portfolio, as well as provide some much-needed diversification. Here are 10 top EM funds.
July 14, 2020
17 Wonderful Work-From Home Stocks
stocks

17 Wonderful Work-From Home Stocks

Is the run in work-from-home stocks over? The pros don't think so. These 17 "WFH" stocks appear poised to continue climbing on the longer-term remote-…
July 1, 2020
Cash In With This Gaming ETF
Technology

Cash In With This Gaming ETF

Cash in on the video gaming craze with this fund.
July 1, 2020
Inside the New Work From Home ETF (WFH)
ETFs

Inside the New Work From Home ETF (WFH)

The Direxion Work From Home ETF (WFH) puts investors in touch with dozens of companies benefiting from the suddenly accelerating trend of remote work.
June 25, 2020