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Hedge Fund-Like ETF Slices Up World

IndexIQ has impeccable (market) timing: The company is starting to sell its second exchange traded fund that holds other ETFs.

The IQ Hedge Macro Strategy Tracker ETF (MCRO) is aimed at replicating and providing hedge fund strategies in an exchange traded product. The IQ Hedge Macro Strategy Tracker ETF will target global macro strategies and emerging markets.

IndexIQ envisions the IQ Hedge Macro Strategy Tracker for use in conjunction with standard emerging market exposure. IndexIQ compares the ETF to the iShares Emerging Market Index Fund (EEM) in its documents.

Holdings, as of April 30, were the iShares Emerging Market Index Fund, at 27% of assets; iShares Barclays 1- to 3-Year Treasury Bond Fund (SHY), 18%; iBoxx Investment Grade Corporate Bond (LQD), 14%. The remainder of the holdings is much smaller. Regarding asset allocation, the fund includes 33% in international equities, 29% in short-term bonds, 14% in corporate bonds, small exposures to international bonds and a 3.7% weighting to the ProShares UltraShort Real Estate (SRS).

The chart, below, captures the back test of the fund. The best-performing asset is the index that underlies the iShares Emerging Market Index Fund and the orange line is the back-tested result of the IQ Hedge Macro Strategy Tracker.


Clearly, the IQ Hedge Macro Strategy Tracker back test was far less volatile than pure emerging market equity exposure, one of the goals of the fund.

The prospectus spells out that the fund will own some combination of the above asset classes and changes could be as frequent as monthly.

My idea of an emerging market hedge fund would include things like Sri Lankan equities or pair-trade going long the Cambodian riel and short the Tanzanian shilling. This isn't possible with ETFs, but going long select emerging market destinations expected to outperform and short iShares Emerging Market Index Fund via an inverse index fund would be possible. Another idea could be to buy a basket of country funds to complement the bond funds held. This might allow IQ Hedge Macro Strategy Tracker to participate with more of the upside that emerging markets might offer.
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EEM $29.19 -1.39%
SHY $85.02 -0.04%
SRS $55.34 3.38%
LQD $113.61 -0.34%
MCRO $23.81 0.05%


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DOW 16,014.38 -12.67 -0.08%
S&P 500 1,852.21 -1.23 -0.07%
NASDAQ 4,268.7630 -14.99 -0.35%

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