Hedge Fund ETFs, Indices, and Replication Funds

Part I – Hedge Fund ETFs

Enclosed a list of Hedge Fund ETFs that replicate specific strategies and/or indices:

QAI IQ Hedge Multi-Strategy Tracker
WDTI WisdomTree Managed Futures Strategy Fund
RLY SPDR Multi-Asset Real Return ETF
CSMA Credit Suisse Merger Arbitrage Liquid Index
MCRO IQ Hedge Macro Tracker ETF
CPI IQ CPI Inflation Hedged ETF
HDG ProShares Hedge Replication ETF
ALT iShares Diversified Alternatives Trust
CSMB Credit Suisse Merger Arbitrage Index Leveraged Exchange Traded Notes
CSLS Credit Suisse Long/Short Liquid Index
ALFA AlphaClone Hedge Fund Long/Short Index
MNA IQ ARB Merger Arbitrage ETF
MRGR ProShares Merger ETF
QMN IQ Hedge Market Neutral Tracker ETF
RRF WisdomTree Global Real Return Fund
QEH AdvisorShares QAM Equity Hedge ETF
HHF.TO Horizons Morningstar HF Index ETF Comm

This list is from the ETF Dabase and can be found here:  http://etfdb.com/etfdb-category/hedge-fund/ along with details on performance, returns, expenses, and holdings

Part II – ’40Act Funds and Replication Funds (GARTX, Natixis Funds) coming shortly


2 Bubbles or not 2 Bubbles, That is the Question

Based on the below headline from today’s (5/8/13) WSJ below, I decided to run a comparison on SP500 vs Hedge Fund Indices for 2 time periods.  Period1 – Jan 2003 to Sep 2007.  Period 2 – March 2009 to end of April 2013.    As you can see from the image below, these were periods of outsized returns.


I used the S&P500 index rather than the DJIA as it gives a broader market picture.  I also compared the S&P500 to two hedge fund indices – the HFRX Global and Dow Jones Credit Suisse Broad Index.

First, let’s look at period1 by viewing Growth of a $1:


Now, Period 2


Now, let’s combine periods on the same graph:


So, what does this tell me:

1) S&P500 looking a bit overheated in comparison to the run-up of 2003 – 2007 (updated 5/14/2013).  I’ve seen the “this time is different” chatter, but even “different” markets follow “laws of gravity”.

2) In relation to Hedge Funds, 2003 to 2007 looks like a long leverage bet on equities.  Data confirms this.  A Period1 times series analysis of S&P500 vs HRFX Global Hedge Fund Index transformed for stationarity shows a correlation of .74.  The same time series analysis transformed for stationarity on Period2 index data has only a .01 correlation.

3) In terms of an uncorrelated return to equities, at a macro-level, hedge funds have delivered.

This is just a quick “back of the spreadsheet” analysis.  It would be interesting to include bond and commodity indices in the mix here.