Hedge-Fund ETF Faceoff: QAI Vs. GURU

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The markets are hitting new highs this year with the Dow Jones industrial average rising to an all-time high of 16,040.20 and the S&P 500 Index climbing to a record of 1,802.37 on Nov. 17.

And ETFs of sorts, including hedge fund replication strategies, are riding the rising tide to new heights.

But not all hedge fund ETFs are hitting it out of the ballpark. In fact, the $568 million IQ Hedge Multi-Strategy Tracker ETF (QAI | C-65), a fund of funds, is up a pedestrian 4 percent year-to-date.

QAI is adhering to how Alfred Winslow Jones, the creator of the first hedge fund, originally conceived of a hedge fund:a portfolio that buys stocks with leverage (or margin), and sells other stocks short to make a conservative portfolio that is less susceptible to wild swings in the market.

On the other hand, the $301.1 million Global X Guru ETF (GURU | C-48), tracks an equal-weighted index that attempts to mimic concentrated equity positions taken by large hedge funds, as reported in public 13-F filings, is up 36.0 percent.

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Chart courtesy of StockCharts.com

Since QAI is a multistrategy, multi-asset-class hedge fund replicator, it's more likely to deliver lower volatility with lower correlations to major asset classes, according to Paul Britt, an ETF analyst at IndexUniverse.

GURU, meanwhile, is equity focused and relies on 13-F filings as a stock selection tool. It doesn't aim to match hedge funds as a whole, and its returns have been great to date, but it's also volatile and heavily correlated to equity, said Britt.

"It's doing really great in an up equity market, but may suffer more if equity markets tumble. It replicates the holdings of hedge funds, though they may be doing lots of other things too," Britt noted.

 

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