Even as the market for liquid alternative products has become more competitive over the last several years, the industry’s first and largest hedge fund-style Exchange Traded Fund (ETF), the IQ Hedge Multi-Strategy Tracker ETF (NYSE Arca: QAI), has continued to grow and attract new assets. 1 The fund, which turned five years old on March 25th, now holds more than $690 million in assets and anchors a growing family of liquid alternative investment solutions, according to IndexIQ, the fund’s sponsor and a leading developer of index-based alternative investment solutions. “Since we launched QAI, we have seen many new competitors enter the market for alternatives with both 40-Act mutual funds and ETFs,” said Adam Patti, chief executive officer at IndexIQ. “This has included some of the biggest and best known names in the investment world, many of whom have struggled to find a foothold in the space. At the same time, QAI has continued to grow, bringing in new assets and investors. We think this speaks to the unique nature of the fund and the various core roles it can play in an investor’s portfolio.” Patti noted that in the low interest rate environment of the last several years, many advisors have been using QAI as a “bond substitute,” to retain the lower volatility of fixed income in their portfolios, while maintaining exposure to potential appreciation in price as interest rates rise. “The beauty of alternatives like QAI is that they add flexibility to a portfolio, as a core holding for investors seeking alternative and hedge fund exposure,” Patti said. “Now that advisors understand the importance of alternatives for portfolio diversification, they also are realizing the lack of other options in the market with the length of track-record and the asset size of QAI. As a result, QAI has rapidly become the default option for many advisors seeking liquid, transparent, alternative investment exposure.”
QAI seeks to track, before fees and expenses, the performance of the IQ Hedge Multi-Strategy Index. The Index, part of a family of investable benchmark hedge fund replication indexes that have been calculating live since 2007, attempts to replicate the risk-adjusted return characteristics of hedge funds using various hedge fund investment styles, including long/short equity, global macro, market neutral, event-driven, fixed income arbitrage and emerging markets.Since the 2009 launch of QAI, IndexIQ has introduced a number of additional liquid alternative ETFs including IQ Merger Arbitrage ETF (NYSE Arca: MNA), the first merger arbitrage ETF; IQ Hedge Macro Tracker ETF (NYSE Arca: MCRO), the first Global Macro/Emerging Markets hedge fund replication ETF; and IQ Global Resources ETF (NYSE Arca: GRES), the first hedged global natural resources ETF. The company continues to be recognized for its innovation, with the IQ Hedge Market Neutral Tracker (NYSE Arca: QMN), designed to provide Market Neutral hedge fund exposure, named the “Most Innovative ETF” at the 9 th Annual Global ETF Awards. The IQ Hedge Indexes are used as the basis for investment products worldwide, and as benchmarks for advisors to determine how well actively managed hedge funds and alternative mutual funds are performing. The indexes underlie a variety of investment products including in addition to ETFs, including mutual funds, separately managed accounts, model portfolios, and institutional accounts. In addition to the products referenced above, other IndexIQ funds include:
- IQ Alpha Hedge Strategy Fund (IQHIX – Institutional Share Class; IQHOX – Investor Share Class), the first open-end, no-load hedge fund replication mutual fund;
- IQ Real Return ETF (NYSE Arca: CPI), the first US-listed “real return” ETF, which seeks to generate a real return above the rate of inflation as measured by changes in the Consumer Price Index;
- IQ US Real Estate Small Cap ETF (NYSE Arca: ROOF), the first US Real Estate Small Cap ETF;
- IQ Global Agribusiness Small Cap ETF (NYSE Arca: CROP), the first agribusiness small cap ETF;
- IQ Global Oil Small Cap ETF (NYSE Arca: IOIL), the first global oil small cap ETF;
- IQ Canada Small Cap ETF (NYSE Arca: CNDA), the first Canada small cap ETF; and,
- IQ Australia Small Cap ETF (NYSE Arca: KROO), the first Australia small cap ETF.
Index performance does not reflect charges and expenses associated with the Funds or brokerage commissions associated with buying and selling ETF shares. One cannot invest directly in an index.The IQ Alpha Hedge Strategy Fund (IQ Fund), the IQ Hedge Multi-Strategy Tracker ETF (IQ Multi-Strategy ETF), and the IQ Macro Tracker ETF (IQ Macro ETF) are not hedge funds and do not invest in hedge funds. The IQ Alpha Hedge Strategy Fund is a registered open-end mutual fund that invests in exchange-traded funds (ETFs) and similar securities in an attempt to replicate the performance characteristics of certain hedge fund investing styles, but with less cost, more liquidity, and greater portfolio transparency than traditional hedge funds. There can be no assurance that the Funds’ investment strategies will be successful. The investment performance of the IQ Multi-Strategy ETF, the IQ Macro ETF and the IQ Real Return ETF (collectively, the IQ ETFs), because they are funds of funds, depends on the investment performance of the underlying ETFs in which they invest. There is no guarantee that the IQ ETFs themselves, or each of the underlying ETFs in the Funds’ portfolios, will perform exactly as its underlying index. The IQ ETFs are non-diversified and susceptible to greater losses if a single portfolio investment declines than would a diversified mutual fund. The IQ ETFs’ underlying ETFs invest in: foreign securities, which subject them to risk of loss not typically associated with domestic markets, such as currency fluctuations and political uncertainty; commodities markets, which subject them to greater volatility than investments in traditional securities, such as stocks and bonds; and fixed income securities, which subject them to credit risk; the possibility that the issuer of a security will be unable to make interest payments and/or repay the principal on its debt; and interest rate risk; changes in the value of a fixed-income security resulting from changes in interest rates. Leverage, including borrowing, will cause some of the IQ ETF’s underlying ETFs to be more volatile than if the underlying ETFs had not been leveraged.
There are differences between investing in bonds and investing in liquid alternative ETFs. A bond is a debt instrument in which an investor loans money to a corporate or government entity that borrows the funds for a specified period of time at a fixed interest rate. Investors typically receive interest on the bonds when they mature. Bond funds hold a portfolio of bonds and can differ widely in strategies, ranging from U.S. Treasuries to high yields, from long-term to short-term. By contract, liquid alternative ETFs typically hold many non-bond securities, but provide investors with many of the same attributes as bond investing, such as dividend yield, lower volatility, and tax efficiency in terms of reduced capital gains distributions.Investors are reminded that all investing involves risk, including possible loss of principal. Consider the Funds’ investment objectives, risks, charges and expenses carefully before investing. A prospectus with this and other information about the Funds may be obtained by visiting www.indexiq.com or by calling (888) 934-0777. Read the prospectus carefully before investing. IndexIQ ETFs and mutual funds are distributed by ALPS Distributors, Inc. (ALPS), which is not affiliated with IndexIQ. Adam Patti is a registered representative of ALPS. IDX001438.031715