AdvisorShares, one of the largest issuers of active ETFs, made another addition to its lineup this week with the debut of a fund that will seek to capture results of long/short hedge fund managers. The new QAM Equity Hedge ETF (QEH) will employ an active long/short strategy that will seek to outperform about half of the long/short equity hedge fund universe that makes up the HFRI Equity Hedge Index. That benchmark includes a number of long/short hedge funds who report their results monthly to HFRI; QEH will effectively attempt to match the performance of that universe, which would result in outperforming about half of the component managers.
It should be noted that the universe of component hedge funds doesn’t necessarily include only market neutral strategies; many hedge funds who report results to HFRI are net long–and often more than 50% net long. QEH will seek to deliver better risk adjusted returns relative to the S&P 500 over time while also delivering lower volatility. For investors without the ability to invest directly in hedge funds–which often have significant expenses and lofty minimums–QEH offers a way to mimic these approaches in a liquid, transparent wrapper.
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“With the launch of QEH, we feel we’re providing advisors and their clients added value with everyday transparency and liquidity of an alternative strategy aimed to deliver a higher risk adjusted return than its notable benchmark over the long-term,” said Kurt Voldeng, Chief Operating Officer of CAM and Co-Portfolio Manager of QEH. “We believe with our benchmark’s underlying constituents measuring approximately 1,000 hedge fund managers, places QEH at an advantage over our competition to generate alpha.”
Under The Hood
As of August 8 the QEH portfolio made its largest allocations to short-term Treasury ETFs, including the iShares Barclays Short Term Treasury Fund (SHV) at about 35% and the Barclays Capital 1-3 Month Treasury ETF (BIL) at about 10% of holdings. With cash making up another 3% or so, the portfolio was effectively about 50% net long. Other long positions in QEH include the Guggenheim S&P 500 Equal Weight ETF (RSP, 5.9%), First Trust Dow Jones Interned Fund (FDN, 3.0%) and the ProShares Short Euro ETF (EUFX, 2.5%)
There are only a handful of short positions at present, including the CurrencyShares Japanese Yen (FXY, -0.9%) and Russell 2000 Growth Index Fund (IWO, -0.2%).
Hedge Fund Replication ETFs
QEH adds to a growing list of ETFs that seek to replicate strategies implemented by hedge funds. Other popular ETFs in this category include the IQ Hedge Multi-Strategy Tracker ETF (QAI), WisdomTree Manged Futures Strategy Fund (WDTI), IQ Hedge Macro Tracker ETF (MCRO) and ProShares Hedge Replication ETF (HDG). Generally speaking, the goal of these ETFs is to deliver returns that exhibit low correlations with “traditional” asset classes such as stocks and bonds.
More recently, a pair of ETFs that seek to mimic holdings of popular hedge fund and investment managers debuted, including the Global X Top Guru Holdings ETF (GURU) and the AlphaClone Alternative Alpha ETF (ALFA).
Disclosure: No positions at time of writing.
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