Liquid alternatives from IndexIQ are continuing to attract to financial advisors and investors looking to generate income but concerned about the impact of rising interest rates.
"Investors and their advisors are faced with the challenge of trying to generate income while preserving capital in the face of an anticipated rise in interest rates," says Adam Patti, chief executive officer at IndexIQ. "After the historic rise of fixed income prices due to historically low interest rates, investors are wondering what to do to diversify their fixed income exposure, which in the face of rising rates may result in significant losses on those fixed income securities. Liquid alternatives offer one potential way to address this issue since a rising rate environment historically has resulted in rising prices for this investment category. In addition to the yield, our alternative ETFs have generally demonstrated two other features likely to appeal to income-oriented investors: low volatility and a low correlation with both 10-year Treasuries and the overall equity market."
The IQ Hedge Multi-Strategy Tracker ETF (QAI) was the first liquid alternative ETF to enter the market and is IndexIQ's flagship fund with approximately USD568m in assets, a figure which has more than doubled over the course of 2013.
"Concerns about the end of the Fed's tapering continue to hang over both fixed income and equity investors," Patti says. "Our liquid alternatives provide a way to maintain exposure to the market while generating income, retaining the historical diversification benefits of fixed income, and mitigating against downside risk."
Patti also notes that each of IndexIQ's funds was designed to provide tax efficiency.
"While the liquid alternatives space has exploded in popularity in recent years, not all funds are created equally from a tax efficiency perspective," he says. "For example, none of our funds come with a K-1, which can be a time consuming and expensive burden for investors come tax time."
IndexIQ has celebrated a number of milestones in 2013, including the fifth anniversary of IQHIX, the fourth anniversary of QAI, and the firm's passing the USD1bn asset mark.
Other ETFs in the company's liquid alternative family include IQ Hedge Macro Tracker ETF, the first global macro/emerging markets hedge fund replication ETF; IQ Hedge Market Neutral Tracker, designed to provide Market Neutral hedge fund exposure; IQ Merger Arbitrage ETF, the first merger arbitrage ETF; and IQ Global Resources ETF, the first hedged global natural resources ETF.
The IQ Hedge Indexes are used as the basis for investment products worldwide, and as benchmarks for advisors to determine how well actively managed hedge funds and alternative mutual funds are performing. The indexes underlie a variety of investment products in addition to ETFs, including mutual funds, separately managed accounts, model portfolios, and institutional accounts.
