Liquid alternatives from IndexIQ are continuing to prove attractive to financial advisors and investors looking to generate income but concerned about the impact of rising interest rates on their portfolios, according to IndexIQ, a leading developer of innovative Exchange-Traded Funds (ETFs).
“Investors and their advisors are faced with the challenge of trying to generate income while preserving capital in the face of an anticipated rise in interest rates,” said Adam Patti, chief executive officer at IndexIQ. “After the historic rise of fixed income prices due to historically low interest rates, investors are wondering what to do to diversify their fixed income exposure, which in the face of rising rates may result in significant losses on those fixed income securities. Liquid alternatives offer one potential way to address this issue since a rising rate environment historically has resulted in rising prices for this investment category. In addition to the yield, our alternative ETFs have generally demonstrated two other features likely to appeal to income-oriented investors: low volatility and a low correlation with both 10-year Treasuries and the overall equity market.”
The IQ Hedge Multi-Strategy Tracker ETF (QAI) was the first liquid alternative ETF to enter the market and is IndexIQ’s flagship fund with approximately $568 million in assets, a figure which has more than doubled over the course of 2013.
“Concerns about the end of the Fed’s tapering continue to hang over both fixed income and equity investors,” Patti said. “Our liquid alternatives provide a way to maintain exposure to the market while generating income, retaining the historical diversification benefits of fixed income, and mitigating against downside risk.”
Patti also noted that each of IndexIQ’s funds was designed to provide tax efficiency. “While the liquid alternatives space has exploded in popularity in recent years, not all funds are created equally from a tax efficiency perspective,” he said. “For example, none of our funds come with a K-1, which can be a time consuming and expensive burden for investors come tax time.”