Exchange Traded Concepts To Begin Trading The AlphaClone Alternative Alpha ETF Thursday, May 31, 2012
Exchange Traded Concepts has announced that they will begin trading The AlphaClone Alternative Alpha ETF (NYSEARCA:ALFA) Thursday, May 31, 2012. The AlphaClone Alternative Alpha ETF (the “Fund”) seeks to track the price and yield, before fees and expenses, of the AlphaClone Hedge Fund Long/Short Index. The objective of the AlphaClone Hedge Fund Long/Short Index is to track the performance of U.S. exchange-traded equity securities selected based on a proprietary hedge fund position replication methodology. The methodology ranks hedge funds and institutional investors based on the efficacy of replicating their publicly disclosed positions and selects equities from those managers with the highest ranking. Eligible constituents are derived from the public disclosures of hedge funds and institutional investors in its universe. Constituents are selected from those managers that have the highest “Clone Score,” a proprietary measure that measures the efficacy over time of investment strategies that follow a specific manager’s holdings. The Index provider’s “clone score” for each manager is based on the monthly returns in excess of a broad market index and a fixed hurdle rate exhibited by the manager’s follow strategies over time. Institutional investors that do not provide enough publicly available information to determine a clone score are not ranked and are not included in the Index. Clone Scores are recalculated bi-annually and incorporate factors such as the persistence in excess returns over time when following different combinations of a manager’s disclosed positions.
Total Annual Fund Operating Expenses: 0.95%
Principal Investment Strategies
The Fund uses a “passive” or “indexing” investment approach to track the AlphaClone Hedge Fund Long/Short Index (the “Index”). The Index is composed of U.S. equity securities selected based on a proprietary hedge fund position replication methodology developed by AlphaClone, LLC (the “Index Provider”). The methodology ranks issuers favored as investments by hedge funds and institutional investors based on the efficacy of replicating their publicly disclosed positions and selects equities from those managers with the highest ranking. Index constituents are equal weighted but have an overlap bias (i.e., holdings with twice the number of holders have twice the weight). The Index can vary from being 100% long to up to 50% short, also known as “market hedged,” based on market volatility targets defined by the methodology. The Index, and therefore the Fund, may take a defensive position and become market hedged (i.e., short) if one or more broad-based market indices close below their respective 200 day moving average at the end of any month. Short positions are used to hedge long positions and to seek positive returns. The Fund will either realize a profit or incur a loss from a short position, depending on whether the value of the underlying stock decreases or increases, respectively, between the time when it is sold and when the Fund replaces the borrowed security.
The Fund is managed by Index Management Solutions, LLC (the “Sub-Adviser”) under the supervision of Exchange Traded Concepts, LLC (the “Adviser”). The Fund, under normal circumstances, invests at least 80% of its net assets in the equity securities that comprise the Index, which include, but are not limited to, common and preferred equity securities, depositary receipts, exchange-traded funds (“ETFs”), real estate investment trusts (“REITs”) and master limited partnerships (“MLPs”). The Fund may invest the remainder of its assets in securities not included in the Index, but which the Sub-Adviser believes will help the Fund track the Index, or in financial instruments that provide long or short exposure to the Index. These financial instruments include, but are not limited to: exchange-traded options on securities, indices and futures contracts and short positions. On a day-to-day basis, the Fund also may hold short-term debt instruments that have terms-to-maturity of less than 397 days and exhibit high quality credit profiles, including U.S. government securities and repurchase agreements.
The Sub-Adviser uses a “representative sampling” approach to try to achieve the Fund’s investment objective. “Representative sampling” is a passive indexing strategy that involves investing in a representative sample of component securities of the Index that collectively has an investment profile similar to the Index. In general, if the Fund is performing as designed, the return of the Index will dictate the return for the Fund. The Fund seeks to be fully invested at all times and Fund will concentrate its investment in a particular industry or group of industries to approximately the same extent as the Index is so concentrated. The Index is rebalanced quarterly. As of May 18, 2012, the market capitalization range of the securities in the Index was $115 million to $496 billion.
The Index Provider is not affiliated with the Fund, the Adviser or the Sub-Adviser. The Index is calculated and administered by Structured Solutions AG, which is independent of the Fund, the Adviser and the Sub-Adviser. Structured Solutions AG and the Index Provider determine the components and the relative weightings of the securities in the Index subject to the Index rules and published information regarding the Index.
For the complete prospectus click: HERE