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An ETF That’s Given Investors Hedge Fund Strategies For a Decade

This article was originally published on ETFTrends.com.

In the exchange-traded fund (ETF) space, returns are typically, if not only, the prime focus for investors--as is the case with most investment vehicles, but there's something to be said about longevity. That's a milestone that  IQ Hedge Multi-Strategy Tracker ETF (QAI) can attest to and not many funds can.

For QAI, its origin began in the thick of the financial crisis where faith in the capital markets was lacking to say the least. However, out of the stress and strife of a market meltdown came innovation that has stood the test of time.

"Fast forward to 2019, and the fund that was built out of that idea, the IQ Hedge Multi-Strategy Tracker ETF (QAI), is turning 10 years old on March 25 th ," wrote Salvatore Bruno, Chief Investment Officer of IndexIQ. "With all the ETFs that have been introduced since, it’s hard to remember just how revolutionary this fund was, and still is."

Related: IndexIQ Debuts Its First Ever Short-Duration Bond ETF

Innovation Born From a Crisis

Since its inception in 2009, QAI has given investors access to an investment space that was typically relegated to only high-net worth individuals or institutions. With the transparency and liquidity of an ETF wrapper that incorporates multiple hedge fund strategies, QAI opens up the arena to all types of investors irrespective of net worth.

Furthermore, rather than implement one strategy based on current market environs, investors can use a one-size-fits-all exchange-traded fund that mimics hedge fund strategies.

Core characteristics of QAI:

  • Transparent, low-cost exposure to six dominant hedge fund strategies without manager-specific risk.
  • Conservative core alternative vehicle that does not wholly rely on traditional sources of risk, including interest rates and equity market beta.
  • Largest, oldest, and award winning multi-alternative ETF (Hedgeweek Award Methodology).

QAI seeks investment results that correspond generally to the IQ Hedge Multi-Strategy Index, which includes investments in underlying funds that meet IndexIQ’s rules-based methodology. The goal is to mirror the risk-adjusted return characteristics of hedge funds by incorporating various hedge fund investment styles–long/short equity, global macro, market neutral, event-driven, fixed income arbitrage and emerging markets.

"It did not invest directly in hedge funds or include hedge funds as components," noted Bruno. "It was liquid, trading like a stock on the exchange. It was transparent. Perhaps best of all, its fees were significantly lower than anything charged by a traditional hedge fund."

QAI currently has an expense ratio of 0.79 percent--worlds away from the 2 percent/20-percent of profits standard charged by hedge funds.

A Battle-Tested Fund

By using a multi-strategy methodology, QAI can thrive in a market environment whether the bulls or bears are reigning. This speaks to the adaptability of QAI that Salvatore Bruno, Chief Investment Officer of IndexIQ, describes as a “mostly independent way of deriving returns from various types of risks in all markets, as an absolute return expectation should act.”

While QAI won’t thrive in a raging bull market like the current run compared to unfettered exposure to the S&P 500, it can meld with an investor’s portfolio if a market drawdown were to occur if the said investor is willing to assume the risk associated with multiple strategies.

Of course, with a 10-year history also comes a track record of consistent performance:

An ETF That's Given Investors Hedge Fund Strategies For a Decade 1

As the wall of worry climbs for investors in 2019--a more dovish Fed, trade negotiations, inverted yield curves, and a global economic slowdown, QAI has been able to generate a 3.67 percent return year-to-date while muting the recent volatility. As investors are becoming more tactical with their capital allocation, a fund like QAI is almost imperative in the current market landscape.

Even with a challenging end to 2018 that saw the S&P 500 lose 6.59 percent, QAI was able to limit the damage with almost half the loss--3.67percent.

The time-tested performance is a byproduct of the innovation that stems from the talent at IndexIQ. While QAI celebrates its 10-year anniversary, it's also a celebration of how long IndexIQ has come.

"As the fund hits this 10-year mark, I find myself thinking back on those early days and looking at all we’ve accomplished with IndexIQ since then," wrote Bruno. "We’re not the startup anymore. In fact, we’re now part of a leading global asset management organization with over $550 billion in assets under management."

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