Breakout

Are ETFs Disrupting the Hedge Fund Industry?

Breakout

There are simply no safe havens anymore and investors know it. In three short weeks, the 10-year Treasury yield has gone from 1.6% to 2.0% and in doing so, has gouged four percent off of the price of these ''super safe'' assets in the blink of an eye. Gold (GLD) has had an even worse month than bonds, shedding over seven percent just this month alone.

At the same time, stocks continue to be the only wining hand in town. Even though the ride has been delightful, owning equities is still nerve wracking.

"Everyone is looking for non-correlated ways to offset risk in portfolios, to offset all the ups and downs," says Tom Lydon, editor of ETF Trends in the attached video. "As long as everyone is long, you have that risk," he adds, crystallizing the What-do-I-do? dilemma investors are grappling with lately.

Not long ago, the answer to this problem fell almost exclusively into the laps hedge funds, but Lydon says things have changed in the past few years, and now, more than ever, individuals have the ability to do themselves what they used to have to outsource to the professionals.

"What's happened is, the average investor just isn't up for the risk anymore," Lydon says, highlighting one of the key reasons why so-called alternative ETFs are experiencing massive growth, including MLPs, REITs, Commodities, Alternative Energy and leveraged funds.

And then there's the cost factor too, says Lydon, noting that the handing over 2% upfront to a hedge fund manager plus 20% of any profits is "crazy" compared to what it costs to own ETFs.

"The fees in the hedge fund area are not attractive anymore," he adds.

In fact, he says, even hedge funds themselves are embracing this trading and allocation trend and now account for a sizable chunk of ETF buying and selling.

"The reason they use (alternative ETFs) is the price is right, they're liquid, you can get in and out very quickly, but most of all, you have all these choices," Lydon says.

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