IndexIQ has launched its second ETF that intends to mimic hedge-fund strategies without investing directly in the lightly regulated investment vehicles.
IQ Hedge Macro Strategy Tracker ETF (MCRO) aims to track the returns of hedge funds that focus on global macro trends and emerging markets. It's a fund of funds that varies the weightings of a basket of 10 ETFs spread across stocks, bonds, commodities and currencies.
IndexIQ says it uses a proprietary macroeconomic, or top-down, approach to decide how much to invest in each asset class.
The portfolio currently devotes 40% of assets to emerging market ETFs, 33% to short-term bonds, 12% to corporate bonds and 4% to international bonds. It has a 3% short position in real estate. It thinks the worst is yet to come for the embattled sector.
The top holdings are Emerging Markets (EEM), iShares 1-3 Year Treasury Bond (SHY), iShares iBoxx Investment-Grade Corporate Bond (LQD), Vanguard Emerging Markets (VWO) and PowerShares DB G10 Currency Harvest (DBV).
MCRO hedges the long positions with ProShares UltraShort Real Estate (SRS). That ETF provides double the opposite returns of real estate.
"Ideally the bonds will perform better when the stocks are falling and vice versa," said David Fabian, vice president of Fabian Wealth Strategies. "This fund will do well over time if emerging markets continue to outperform domestic indexes."
Some other assets managers took a more cautious view.
"There is little evidence that synthetic hedge fund strategies mimic actual future hedge fund returns," said Richard Ferri, founder and CEO of Portfolio Solutions, Inc. "The past regressions used to create the ETF portfolio are outdated by default and do not reflect current hedge fund holdings."
"I would wait to see how closely the past performance of this strategy can be replicated going forward, in real time, before making an initial commitment today," said William Koehler, chief investment officer of ETF Portfolio Solutions.
MCRO charges shareholders 1.14% of assets to cover expenses.
New Leveraged Foreign ETFs
ProShares released June 3 four new ETFs that double the daily returns of the most popular foreign indexes:
• ProShares Ultra MSCI EAFE (EFO)
• ProShares Ultra MSCI Emerging Markets (EET)
• ProShares Ultra FTSE/Xinhua China 25 (XPP)
• ProShares Ultra MSCI Japan (EZJ)
ProShares also offers UltraShort versions, which double the short exposure to their underlying indexes. They carry expense ratios of 0.95%.
Source: Investor's Business Daily
