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Salvatore Bruno, IndexIQ

IndexIQ’s hedge fund tracker ETF celebrates tenth birthday and assets of USD1bn

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ETF provider IndexIQ’s hedge fund tracker ETF has reached its 10-year anniversary with assets of over USD1 billion.

Sal Bruno (pictured), CIO of IndexIQ, explains that the IQ Hedge Multi-Strategy Tracker ETF (QAI) was built on the idea of providing investors with a low cost, transparent, highly liquid, and tax efficient tool that would allow them to add hedge fund-like exposure to their portfolios.  

Bruno explains that at the time, he had concerns about the structural issues in hedge funds such as access under accredited investor rules, resources for due diligence and the lack of transparency, liquidity, tax inefficiency and high fees.

“All of this led us to wonder if we could deliver similar returns but not actually invest in hedge funds,” Bruno says.

The firm did a lot of research and came up with the methodology that became QAI, which seeks to replicate the performance of six different hedge fund strategies.

“We are not trying to replicate the performance of individual hedge fund managers,” Bruno explains. “It’s got more of a multi strategy fund of funds feel.”

And alongside that, the performance has been pretty much in line with expectations relative to a multi strategy fund of funds, with a 3 per cent annualised return from 2009 to 2019.

Investor groups who have been targeted for QAI include registered investment advisors, independent firms who are not affiliated with the large broker dealers, plus the larger wire houses used by financial advisers who are looking to supplement their actual hedge fund positions.

Fees on QAI come in at a total of 79 basis point including its management fee of 75bps, a fee waiver that brings it down to 54 bps and 25 bps of acquired fund fees.

IndexIQ uses other ETFs to get exposure to key factors of performance for the ETF.

Commenting on this week’s news that the SEC is conditionally allowing the formation of a non-transparent ETF, Bruno says: “It’s an interesting and useful development, but we have to wait and see how the end investors feel about it. Fund companies will find it useful as they have been worried about front running.”

However, Bruno cautions that time will tell how the end investor embraces a non-transparent ETF. 

“One of the main benefits of an ETF is transparency and that will go away – how important is it if you strip that one important attribute away? Only time will tell.”

The key message from the QAI brand is that, at the time, QAI was the latest innovation, from a new firm with no ETF clients, trying an unproven strategy.

Bruno says: “To make it to our 10-year birthday with USD1 billion under management, reinforces what we believed, that this was a valuable addition to a portfolio – that is tremendously satisfying.”

The firm continues to try and innovate and has now passed USD1 billion under management on its second ETF, the MNA ETF, based on merger & arbitrage activity.

“We continue to see inflows there as well and will continue to innovate in the alternative space and build upon our momentum,” Bruno says.

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