IndexIQ has filed paperwork with the SEC for a “IQ Long/Short Alpha ETF.” The IQ Long/Short Alpha ETF (the “Fund”) seeks capital appreciation through purchases and short sales of primarily U.S. listed equity securities. They did not specify a trading symbol or expense ratio in the initial filing.
PRINCIPAL INVESTMENT STRATEGIES
An investment strategy that can produce consistent positive rates of return that are independent of market direction can be a valuable addition to an investor portfolio, as it can reduce the portfolio’s overall volatility and provide for more consistent portfolio returns. Having both long and short positions in equity securities is a common way to create returns that are independent of market moves. When the positive equity market exposure of the long positions is offset by the negative equity market exposure of the short positions, the resulting portfolio can have little to no net exposure to the direction of the market. When the long and short equity securities are expected to outperform the positive market and negative market, respectively, the resulting portfolio is expected to have positive stock selection. The combination of a market neutral portfolio with positive stock selection can reduce overall portfolio volatility and provide for more consistent market outperformance independent of market moves.
The portfolio management team uses equity recommendations from a leading investment research firm serving leading hedge funds, institutions, and other investors as the basis for the Fund’s positions. Each day, the research firm produces and delivers to the portfolio manager a group of equity security recommendations that the research firm deems to have the greatest potential for capital appreciation. These equities will form the basis for the long portion of the Fund. In addition to the long equity recommendations, there is a group of equities that the research firm deems to have the greatest potential for capital depreciation. These equities will form the basis for the short portion of the portfolio. For both long and short positions, the recommendations may include exchange-traded funds (“ETFs”) registered pursuant to the Investment Company Act of 1940 (the “1940 Act”), exchange-traded notes (“ETNs”) and other exchange-traded products (“ETPs”).
The research firm uses a combination of fundamental macro and sector research along with quantitative models to generate investment ideas. The portfolio management team then takes the individual equity recommendations that come from the research firm and assigns them a volatility-adjusted weight. Accordingly, the equities with the highest volatility are given the lowest weights and the equities with the lowest volatility are given the highest weights. Similarly, on the short side, the recommended short equities are assigned a volatility-adjusted weight, but in the opposite manner. Equities with the highest volatility are given the smallest short weights and equities with the lowest volatility are given the largest short weights.
For the complete filing click: HERE