IndexIQ recently cleared the $1 billion in assets milestone as the firm’s alternative ETFs focused on hedge fund strategies and commodities gain traction.
The company’s chief executive in a recent interview said some investors are using its hedge fund, inflation hedged and real estate ETFs as fixed income alternatives in a low-rate environment for bonds.
The ETFs offer decent yields with lower price volatility than some bonds, while also hedging against a rise in inflation.
IndexIQ is probably best known for its ETFs that attempt to replicate hedge fund strategies, including QAI, IQ Hedge Market Neutral Tracker ETF (QMN), IQ Hedge Macro Tracker ETF (MCRO) and IQ Merger Arbitrage ETF (MNA).
Patti acknowledged hedge fund returns have been disappointing in recent years, but should improve as interest rates eventually move higher.
He said the ETFs are “cheaper” versions of hedge funds, also without the lockup periods.
“They provide diversification, downside protection and less volatility,” said Patti, adding that some of the hedge fund ETFs have three-year track records.
Elsewhere in the firm’s ETF lineup, IQ Real Return ETF tries to deliver performance over and above the rate of inflation as measured by the Consumer Price Index. The fund actually invests in other ETFs to get exposure to various asset classes including U.S. and international stocks, Treasuries, currencies, real estate and commodities.
Finally, Patti said the small-cap REIT fund, ROOF, has been “blowing the doors” off in terms of performance and yield. The ETF is up 52% for the trailing 12 months, according to Morningstar. As of March 31, the ETF’s index dividend yield was 5.41%, according to IndexIQ.
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