New ETFs Are Poor Man’s Hedge Fund

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June 15, 2009 9:01am ETF BASIC NEWS NYSE:MCRO

guyETF’s give access to trading vehicles that were, in the past, out the reach of most retail investors. Hedge fund’s are one example where their investors are primarily wealthy individuals and institutions. They typically have a great deal of funds to invest, and can weather significant portfolio downturns in their portfolio in their quest for higher returns. Hedge funds are riddled with fee’s with most charging  “2 and 20”, 2% of the fund’s net asset value each year and a performance fee of 20% of the fund’s profit.


Jason Kephart, writing for SmartMoney looks into the newly released ETF the “IQ Hedge Macro Tracker” (MCRO). He states that: “The ETF is based on the IQ Hedge Macro Index, which mimics hedge fund returns based on a global macro and emerging market strategy, but the ETF uses a backwards looking analysis to re-balance at the end of every month. In short, it takes the hedge fund returns from the last month, say May, and restructures its portfolio in an attempt to match the strategies that worked to generate similar returns in June.

Yes, you read that right — the ETF is perpetually aping strategies executed a month ago. One obvious problem: Using monthly returns to re-balance makes it very difficult for the fund to know what the hedge funds were investing in.”

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