An Investor's Guide to Liquid Alternatives
QAI’s alternative approach
The IQ Hedge Multi-Strategy Tracker ETF (QAI) utilizes a passive approach that seeks to track the IQ Hedge Multi-Strategy Index (IQHGMS). It uses a mathematical model to analyze hedge funds’ performance. It then invests in other ETFs that track asset classes, mimicking those patterns. QAI is a passively managed fund-of-funds type of ETF.
The underlying index components include ETFs or other exchange-traded vehicles that issue equity securities primarily organized in the US. The PowerShares Multi-Strategy Alternative Portfolio ETF (LALT) is a similar liquid alternative that comes close to QAI in mimicking hedge fund strategies.
80% passive, 20% active
QAI’s fund manager invests 80% of its net assets in the underlying index components, whereas the remaining 20% is actively managed. So, there is always a small gap between their returns. As a fund-of-funds type of ETF, QAI’s top holdings include shares of other ETFs such as the Vanguard Short-Term Bond ETF (BSV) and the iShares 1–3 Year Treasury Bond ETF (SHY). Most of QAI’s ETF holdings come from the fixed income sector.
QAI’s top 10 holdings constitute ~73.42% of its total ETF holdings. QAI’s weekly return is 0.4%, and it traded at $29.52 as of August 14, 2015. The SPDR Barclays Capital Convertible Securities ETF (CWB), the Vanguard Total Bond Market ETF (BND), and the Vanguard Short-Term Bond ETF (BSV) are the top three holdings of QAI. They constitute roughly 50% of QAI’s net assets. CWB top holdings include preferred stock or bonds of companies such as Allergen (AGN), Wells Fargo (WFC), and Intel (INTC).
How do these alternative ETFs differ in their investment styles? We’ll discuss this in the next part.
Browse this series on Market Realist: