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Alternative ETFs Face Uphill Climb


Alternative strategies have been growing in popularity after the financial crisis but investors have been slower to adopt the ETF wrapper.

“At least two firms are looking for help to boost assets in their languishing alternative strategy ETFs,” Ignites.com reports.

Alternative ETFs are loosely defined. The category can include commodities, leveraged and inverse ETFs, and hedge-fund strategies such as long-short, for example. [ProShares Embracing Alternative ETFs]

One of the largest alternative exchange traded products is iPath S&P 500 VIX Short-Term Futures ETN (VXX). The exchange traded note has a market cap of $1.1 trillion and is designed to track the performance of VIX futures contracts.

IQ Hedge Multi-Strategy Tracker (QAI) is among the ETFs that attempt to replicate hedge-fund returns. [ETF Chart of the Day: Hedge Funds]

Alternative strategies have gotten second look from investors disappointed with the performance of stocks the past decade who want to diversify.

“The alternative ETF market hasn’t really taken off, and what you see with alternative ETFs that are popular are more alternative asset classes,” said Alec Papazian, associate director at Cerulli Associates, in the Ignites report.

Alternatives overall make up $39 billion of the $1.5 trillion U.S. ETF market, according to Morningstar, which places commodity products in a separate category.

“Some of these [alternative strategies] lend themselves better to active management and mutual funds,” which do not require portfolio transparency or large trading volumes to attract assets, Papazian said in the article.

The opinions and forecasts expressed herein are solely those of John Spence, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.