From the most basic portfolio building blocks to specialized funds that give investors access to niche markets, ETFs cover them all, and with the constant opening and filing of new ETFs it is easy to forget about some of the older funds still on the market for investors. Although there are numerous new funds already in the pipeline, taking a step back and looking at the performance of ETFs that have been on the market for a while paints a vivid picture of just how far the industry has come [see also 5 Worst ETF Strategies Of The Last 5 Years].
This month marks the three-year anniversary of three offerings from issuers IndexIQ and iShares. Since October of 2009, hedge fund ETFs, CPI and ALT, along with the commodity producers ETF GRES have weathered poor market conditions and proved that their strategies are here to stay. Combined, these funds have accumulated over $170.5 million and counting in total assets over the last three years [see Cheapskate Hedge Fund ETFdb Portfolio].
Below we check on the three year performance of these ETFs:
IQ Real Return ETF (CPI)
Using hedge fund strategies as a template for ETFs was just coming into popularity in 2009, and CPI is one of the four oldest funds still in operation using this technique. Unlike most ETF categories, each of the fifteen funds have a very unique point of view and there is very little overlap in strategies, drawing all different styles of investing into these funds. CPI’s hedge against the U.S. inflation rate has proved crucial for investors who thought the recovery of the U.S. economy would be a long drawn out affair and invested accordingly [see also A Closer Look At Hedge Fund ETFs].
CPI has made a name for itself by providing a return above the rate of inflation (as determined by the Consumer Price Index), while other funds struggled to make a return of any kind, along with one of the lowest expense ratios of hedge fund ETFs, investors actually get to enjoy these returns. This strategy has been overlooked in the past, but with a new round of quantitative easing in the works, inflation fears are high and investors shouldn’t glance over this fund.
Diversified Alternatives Trust (ALT)
iShares launched its own solution to the hedge fund ETF only days after IndexIQ brought CPI to market. ALT’s objective is to maximize absolute returns from investments with historically low correlation to traditional asset classes through futures contracts, while still controlling volatility through both short and long positions in historically correlated assets.
This fund has been very closed about what it is they are investing in to reach steady returns and unlike many ETFs there is no benchmark to gauge the performance of the fund. Long holdings in the past have included US Treasury notes, German Euro bonds, and multiple index futures all lasting over ten years. Other country bonds are often held as a short hedge, including Australia, Canada and Taiwan. Performance of this fund has not been fantastic over the past three years, but investors who think the global economy is back on track should take another look at ALT [also check out The Best and Worst Emerging Markets ETFs Over the Past 3 Years].
IQ Global Resources ETF (GRES)
Commodity Producers have had a hard year so far in 2012, but GRES is still up 6.32% to date. Along with a 27% three-year return, investors who weathered through the negative returns of 2011 are patting themselves on the back now. By using momentum and valuation factors to identify the best global companies that both operate in commodity specific segments and trade in developed markets, GRES has proved as profitable strategy for the long-term investor [see also 10 Commodity ETFs Every Investor Should Know, But Most Don't].
By not only holding U.S. and international commodity producers, but leaving 10% of the portfolio for short global equity hedges, this fund has found ways to lessen the negative effect of negative market cycles. These shorts can also be used in good times to amplify a positive market, and could be a great investment when commodities look to be recovering.
Disclosure: No positions at time of writing.