New ETFs Copy Hedge Funds

25-Oct-2012

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An eternal optimist, Liu-Yue built two social enterprises to help make the world a better place. Liu-Yue co-founded Oxstones Investment Club a searchable content platform and business tools for knowledge sharing and financial education. Oxstones.com also provides investors with direct access to U.S. commercial real estate opportunities and other alternative investments. In addition, Liu-Yue also co-founded Cute Brands a cause-oriented character brand management and brand licensing company that creates social awareness on global issues and societal challenges through character creations. Prior to his entrepreneurial endeavors, Liu-Yue worked as an Executive Associate at M&T Bank in the Structured Real Estate Finance Group where he worked with senior management on multiple bank-wide risk management projects. He also had a dual role as a commercial banker advising UHNWIs and family offices on investments, credit, and banking needs while focused on residential CRE, infrastructure development, and affordable housing projects. Prior to M&T, he held a number of positions in Latin American equities and bonds investment groups at SBC Warburg Dillon Read (Swiss Bank), OFFITBANK (the wealth management division of Wachovia Bank), and in small cap equities at Steinberg Priest Capital Management (family office). Liu-Yue has an MBA specializing in investment management and strategy from Georgetown University and a Bachelor of Science in Finance and Marketing from Stern School of Business at NYU. He also completed graduate studies in international management at the University of Oxford, Trinity College.







By Michael Kling, Money News,

Want the return of a hedge fund for the cost of an exchange-traded fund (ETF)?

New ETFs hope to offer that by using public filings to copy hedge fund portfolios, according to Institutional Investor.

Two new ETFs, Global X Funds’ Top Guru Holdings Index ETF (GURU) and AlphaClone’s Alternative Alpha ETF (ALFA) hope to match hedge fund returns by copying the Form 13F filings hedge funds make with the Securities and Exchange Commission.

ALFA, which started trading May 31, has a three-month average annualized return of 9.23 percent. GURU, which debuted in June, has a three-month return of 9.6 percent.
By contrast, the HFRI Fund Weighted Composite Index, which is a benchmark of hedge fund performance for more than 2,000 funds, had a three-month return of 2.5 percent for about the same period.

Of course, judging the funds from their short histories is difficult.

ALFA, unlike GURU, might take short positions as a hedge, which is called a market-neutral strategy.

In addition, IndexIQ’s Hedge Market Neutral Tracker ETF (QMN) replicates the strategies of hedge funds, not their actual positions, by using statistical modeling techniques, IndexIQ CEO Adam Patti told Institutional Investor.

QMN, which just started trading this month, is the only copycat ETF that employs a truly market-neutral strategy, Patti said, which will provide “consistent returns in all market conditions with low volatility.”

Critics of ETF copycats say hedge funds’ quarterly filings are outdated by the time they’re read, according to Institutional Investor. Copycats cannot determine for sure why the hedge fund took a particular position, if it still holds it or what other investment it now holds.

Mazin Jadallah, founder and CEO of AlphaClone, counters that hedge fund positions are longer than generally believed and that their long-position gains produce much of their gains.

Hedge funds are sometimes criticized for being illiquid and charge high fees for uncertain returns, Reuters noted. As a group, hedge funds returned about 5 percent on average through September, while the Standard & Poor’s 500 gained 16.43 percent. Hedge funds charge a performance fee, which can be 20 percent or more, in addition to a management fee.

The TrimTabs Float Shrink ETF (TTFS), an actively managed ETF from AdvisorShares, gained 35 percent since launching last October, according to Reuters.


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