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How to Replicate Hedge Fund Strategies with ETFs

Neena Mishra
  • (0:45) - What Are Liquid Alternative Strategies?
  • (6:00) - IQ Merger Arbitrage ETF: MNA
  • (16:15) - 2019 Outlook For M&A Activity 
  • (18:25) - IQ Hedge Multi-Strategy Tracker ETF: QAI
  • (23:00) - How Should Investors Deploy These Alternative Strategies?
  • (25:50) - Episode Roundup: Podcast@Zacks.com

In this episode of ETF Spotlight, I talk with Sal Bruno, CIO at IndexIQ, a leading issuer of liquid alternative investment solutions.

Not many investors understand how liquid alternatives—often called hedge funds for Main Street—work and how they should be used in a portfolio. Sal explains what investors need to know about these strategies.

Some of these strategies available to investors in an ETF wrapper include merger arbitrage, market neutral, long/short, global macro, event-driven, and inflation protection.

Merger arbitrage, a popular hedge fund strategy, aims to exploit the spread between target stock's price after the announcement of the deal and the final takeover price. Due to the risk that an announced deal may not go through for some reason, target usually trades at a lower price until the takeover is complete.

The IQ Merger Arbitrage ETF MNA employs a merger arbitrage strategy by investing in companies for which a takeover has been announced and shorting broad global equity indexes. Tune into the podcast to learn more about this strategy.

We discuss the construction of the ETF, how components are selected, as well as what happens if a deal fails to materialize. We also discuss some of the top holdings, including Red Hat RHT and Celgene CELG.

Red Hat is being acquired by IBM IBM and Celgene is being bought by its rival Bristol-Myers Squibb BMY.

We also discuss the outlook for M&A activity in 2019.

The first and the biggest liquid alternative ETF--IQ Hedge Multi-Strategy ETF QAI—seeks to replicate hedge fund returns across different strategies, including long/short equity, global macro, market neutral, event-driven, fixed income arbitrage and emerging markets.

QAI is a fund of funds. We discuss some of its top constituents.

Investors should remember that these strategies aim to provide returns that are not correlated to the broader indexes. Since these strategies have low correlations with stocks, they also provide some diversification benefits to the portfolio and risk mitigation during periods of market turmoil. Both MNA and QAI outperformed the S&P 500 index last year.

Why should investors consider alternative strategies in the current market environment? Find out on the podcast.

Please visit IQ ETFs to learn more about these ETFs.

Make sure to be on the lookout for the next edition of ETF Spotlight and remember to subscribe! If you have any comments or questions, please email podcast@zacks.com.

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International Business Machines Corporation (IBM) : Free Stock Analysis Report
Bristol-Myers Squibb Company (BMY) : Free Stock Analysis Report
Red Hat, Inc. (RHT) : Free Stock Analysis Report
IQ Hedge Multi-Strategy Tracker ETF (QAI): ETF Research Reports
IQ Merger Arbitrage ETF (MNA): ETF Research Reports
Celgene Corporation (CELG) : Free Stock Analysis Report
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