IndexIQ has some USD3.5 billion in assets and, says CIO, Sal Bruno, enjoys the position of being the leading ETF provider of primarily non-market cap weighted indices.
The firm was founded in 2008 to focus specifically on the creation of ETFs in the alternative space, Bruno explains, and they still have two of the largest absolute return ETFs in that space.
2015 saw the firm being taken over by the US’s largest mutual life insurance company, New York Life, in a takeover that allowed them to maintain their entrepreneurial spirit within NYLIM’s multi-boutique approach to investment.
“The takeover allowed us to have access to other areas of excellence across fixed income and equity,” Bruno says.
“Clearly the trend away from active to passive has been permeating the industry in a tidal wave and there has been a growth of lower fee and better performing products in the ETF space.”
Back in 2008, Bruno says, there were a handful of firms trying to get into the space but now most asset managers are in the ETF business or trying to get started.
“We have also seen product expansion across different slices of the asset classes,” he says. “It’s more difficult because most of the major asset classes have been covered already – it’s difficult to try and differentiate yourself, so we continue to focus on alternatives and build upon our foothold.”
Innovative solutions are also on the list for IndexIQ and this has recently seen them applying them to the fixed income world. In its previous incarnation, IndexIQ was a self-indexing organisation, creating its own indices without third parties being involved.
“However recently we have worked with third party index providers, where it makes sense for us to do so,” Bruno says. 2015 saw the launch of their 50 per cent currency hedged ETFs, trying to leverage using the FTSE Russell indices.
And NYLIM’s multi-boutique structure means that fellow NYLIM firm MacKay Shields, specialists in income producing products, has worked with IndexIQ to produce a fixed income ETF. MacKay Shields has some USD100 billion in fixed income assets.
“New York Life allows us to continue to operate with the entrepreneurial spirit but the capital and strength of the 172-year history of a life company,” Bruno says.
Another venture within the group has been with Candriam Investors Group, a European based firm that specialises in ESG investing and with whom IndexIQ has created five ESG ETFs, three in equities and two in fixed income.
“ESG has become very popular and if you look at some of the demographics of investors such as the millennials, they want to do good as well as doing well and having a positive impact on the environment and the world at large,” Bruno says.
While IndexIQ’s roots lie in smart beta or factor investing, like many, Bruno does not like the term. “Smart beta is more of a marketing term than an investment,” he says. “There is strong interest in our factor based products. On the fixed income side, we tried to look at what is going on in the world and everyone is looking for income, everybody wants yield so we were looking at ways to help people get exposure to yield but protect them from growing risk.”
The result is a momentum strategy through the Barclays Aggregator fixed income index, segmenting the high yield bond universe.
The best performing ETF within IndexIQ’s repertoire is the small cap US real estate ETF which invests in the bottom 10 per cent of REITS in the US and, Bruno comments that the drive for yield is what has made it fast growing (with USD100 million under management) and top performing.
Investors within the IndexIQ range of ETFs are primarily retail investors coming in through the registered investment adviser route or the broker/dealer path. “These guys are rapid adopters of newer ideas and concepts,” he says.
“We have broad capabilities at IndexIQ and the types of ETFs we can bring out are broad in nature. Our Hedge IQ ETF has USD1.1 billion in assets.”
The firm is now launching active ETFs in the muni space, with MacKay Shields’s expertise on board. “We are trying to innovate across all asset classes,” Bruno says.