In our second talk with Hedge Fund professional Maz Jadallah, this Q&A explores a new Hedge Fund ETF with international exposure.
If you haven’t read the previous Q&A, we highly recommend you do:
Invest Like a Hedge Fund Manager: AlphaClone CEO Maz Jadallah Shares His Insider Tips
ETFdb.com (ETFdb): As you told us in our previous interview, there will probably be a new AlphaClone ETF this year. The time has come, and a new AlphaClone ETF is being launched on November 10. Could you tell us some unique features of this new ETF? Is it passive or active, what kind of exposure can investors expect, anything else you feel distinguishes this ETF in any way?
Maz Jadallah (M.J.): The AlphaClone International ETF (NYSE: ALFI) seeks to give investors the potential to outperform broader international markets while also hedging against protracted market downturns. This fund is passive and tracks the AlphaClone International Downside Hedged Index. The index uses AlphaClone’s proprietary Clone Score methodology to continuously score managers based on the efficacy of following their disclosures, then aggregates at least 40 high conviction American Depository Receipt (ADR) holdings from managers with the highest score. The index also employs the firm’s innovative dynamic hedge mechanism that allows it to vary from long-only to market-hedged when the S&P 500 closes below its 200-day simple moving average at any month’s end.
ETFdb: What inspired you to launch the new ETF?
M.J.: We think international markets are going to be an important area for investors in the intermediate and long term. Equity valuations are more favorable than in U.S. markets by quite a bit. In addition, pursuing the potential for alpha is even more important today for long-term investors given the anemic growth forecasted for equities and bonds over the next several years. This fund gives investors the potential to capture alpha in international markets in a passive, accessible and tax-friendly investment vehicle.
ETFdb: What are the main differences between the AlphaClone Alternative Alpha ETF (ALFA) and this new ETF?
M.J.: Both funds use AlphaClone’s proprietary Clone Score methodology to continuously score managers based on the efficacy of following their disclosures. ALFI then focuses on screening high-scoring managers for their high conviction American Depository Receipts (ADR) holdings, while ALFA screens for high conviction holdings overall. Both ETFs employ our dynamic hedge mechanism.
ETFdb: As far as I understand, this ETF gives investors exposure to international markets while limiting market downside. To what international markets does the ETF have the most exposure?
M.J.: Currently, the index tracked by ALFI has China and Europe as the two most overweight regions. In terms of sectors, technology/Internet and healthcare are most overweight.
ETFdb: During our previous interview, we were talking about the score approach that the ALFA ETF follows and combines the best of “man and machine.” Does this new ETF have a similar score approach to picking managers?
M.J.: Yes. ALFI utilizes the same approach as ALFA in terms of scoring managers.
ETFdb: What is your view on the future performance of international markets?
M.J.: We believe the timing is favorable now to invest in international markets, but given the slower forecasted growth generally for global economies, we feel it is also going to be important to be more selective in where to invest.