New York-based IndexIQ has launched what it dubs the first no-load open-end mutual fund based on hedge fund replication, designed to give investors access to hedge fund-like performance characteristics.
The IQ Alpha Hedge Strategy Fund is based on the firm’s belief that “alternative beta”—returns due to varying exposure to different asset classes—is the primary driver of aggregate long-term hedge fund portfolio performance. That beta is captured initially in the IQ Alpha Hedge Index, which uses proprietary algorithms to closely replicate the returns of six major hedge fund strategies: equity long/short, global macro, emerging markets, fixed-income arbitrage, equity market neutral and event-driven.
The fund’s alpha comes from optimizing the relative index weights among these six hedge fund strategies. It employs leverage totaling 25% of the portfolio to magnify returns.
“There is a significant body of academic research that supports the ability of hedge fund replication strategies to capture the characteristics of broad-based hedge fund returns, without the associated costs and risks of investing directly in the underlying strategies,” said Robert Whitelaw, chief investment strategist at IndexIQ. “The IQ Alpha Hedge Strategy Fund employs the latest research and modeling techniques to provide access to these strategies in a low-cost, open-end investment vehicle.”