Breakout

A New ETF to Replicate Hedge Funds

Jeff Macke
Breakout

As macro chaos makes generating returns increasingly difficult, the only thing outpacing the number of hedge fund kings sending money back to investors are the ETFs designed to replicate hedge fund returns. The latest to join the ranks is the AdvisorShares QAM Equity Hedge ETF (QEH). In the attached clip co-portfolio manager Kurt Voldeng joined Breakout to discuss its launch.

The fund seeks to replicate the long/short strategies used by funds represented in the HRFI (total), one of the oldest and highly regarded measures of industry average performance. "There's roughly 1,000 managers that make up that index," explains Voldeng. "It's a very fluid index of managers" making the the index as close as average investors can get to investing in a hedge fund without finding their own funds.

QEH analyzes these management returns to determine the strategies of the underlying funds and replicating best of breed by investing in assorted ETFs.

The natural question is why would an individual investor want to replicate average hedge fund returns. According to the HFRI itself, hedge funds are up 2.3% this year, roughly 1/5th the gains of the S&P 500. Over the last 5 years the HFRI has an annualized return of negative 0.6%, about in-line with the S&P.

The difference, Voldeng says, is the reduced volatility of using an index versus a single manager. The diversity of the pool of investments provides a "dampening effect" to a portfolio, enabling "equity-like returns and do it with 1/3 to 2/3's of the volatility to the market."

The fund starts trading on the New York Stock Exchange today under the ticker (QEH).

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