for the quickly growing firm which is slowly but surely making a name for both itself and active management in the Exchange-Traded world.
Its latest foray into the space comes from Commerce Asset Management which is acting as the portfolio manager for QEH. The product seeks returns that exceed the risk adjusted performance for approximately 50% of the long/short equity hedge fund universe as represented by the HFRI Equity Hedge Total Index (also see Three Outperforming Active ETFs).
This benchmark is a fund-weighted index of select hedge funds focusing on Equity Hedge strategies. The firm defines this as processes which consist of a core holding of long equities hedged at all times with short sales of stocks and/or stock index options.
By doing this, the advisors hope that QEH can serve as a broad market beating fund that is also an alternative for hedge-fund investors. In other words, it looks to be a hedge fund for the everyday investor allowing them to obtain similar strategies/holdings as hedge funds but without the time selecting a particular fund or the potentially large initial capital requirements.
Additionally, QEH will have daily holdings information and intraday liquidity, something that is incredibly rare to come across in the hedge fund universe (see AdvisorShares Launches Global Alpha and Beta ETF).
“With the launch of QEH, we feel we’re providing advisors and their clients added value with everyday transparency and liquidity of an alternative strategy aimed to deliver a higher risk adjusted return than its notable benchmark over the long-term,” said Kurt Voldeng, Chief Operating Officer of CAM and Co-Portfolio Manager of QEH. “We believe with our benchmark’s underlying constituents measuring approximately 1,000 hedge fund managers, places QEH at an advantage over our competition to generate alpha.”
Currently this strategy produces a well diversified fund-of-funds that has long positions in over three dozen ETFs. Top holdings, at time of writing, include two bond ETFs—SHV and BIL—while broad equity, internet, and European fund round out the rest of the top five (see Three Overlooked Active ETFs).
While the strategy may sound intriguing, investors should note that the product will likely have low volume levels, at least initially, suggesting wide bid ask spreads. Furthermore, the fund has a somewhat-high expense ratio when compared to index funds as the net expense comes in at 1.64%. However, it should be noted that this cost is probably far less than what investors would pay if they bought a ‘traditional’ hedge fund.
Unfortunately for QEH, it may have some heavy competition in the hedge fund ETF world. Currently, there are a handful of other products in the segment including the pretty popular IQ Hedge Multi-Strategy Tracker ETF (NYSEARCA:QAI).
This fund has well over $200 million in AUM and trades more than 50,000 shares in a normal session suggesting solid levels of volume and a tight bid ask spread. The fund has performed pretty well so far in 2012 and has seen a pretty low level of volatility as well. Over the past year, the product has added more than 3.2% while it has moved higher by about 11.7% since its inception (read HDGE: The Active Bear ETF under the Microscope).
Thanks to this low correlated performance and relatively low fees, it could pose as a big threat to the just-launched QEH. However, some of the more quantitative features of the just-released AdvisorShares fund could be of interest to investors and make them choose QEH over its IndexIQ counterpart.
For example, QEH looks to use advantaged algorithms, including the Markov Processes International style analysis technique, Dynamic Style Analysis, patented hedge fund analysis software, and the fund managers’ inside knowledge of the space. Given these impressive features, the new fund, if it is able to produce a solid rate of return, could be an interesting choice for investors seeking a new choice that has hedge fund like capabilities within the ETF structure.
Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report >>
In 1978, Len Zacks discovered the power of earnings estimates revisions to enable profitable investment decisions. Today, that discovery is still the heart of the Zacks Rank, a peerless stock rating system whose Strong Buy recommendation has an average return of 26% per year.