The IndexIQ IQ Alpha Hedge Strategy Fund, a no-load, open-end mutual fund, marked its five-year anniversary on 30 June 2013.
At its introduction, the IndexIQ fund was the first open-end hedge fund replication mutual fund in the market. Total assets in US alternative mutual funds and exchange-traded funds (ETFs) are now approximately USD550bn, according to a recent report from SEI.
“Since we launched the IQ Alpha Hedge Strategy Fund, both retail and institutional investors and their advisors have come to embrace ‘liquid alternatives’ as an asset class, recognising that these funds can bring diversification, liquidity, and other desirable characteristics to an investment portfolio,” says Adam Patti, chief executive officer at IndexIQ. “We are confident that this trend is still in its infancy.”
The IQ Alpha Hedge Strategy Fund is designed as a core holding for investors, providing broad market exposure and also acting as a replacement for more costly traditional hedge funds. It uses a proprietary investment process to synthesise the risk and return profiles of a broad range of hedge fund investing strategies, seeking to deliver hedge fund-like performance in a low cost, transparent, and highly liquid investment vehicle. The rules-based investment process selects components from a wide array of ETFs that cover commodities, currencies, stocks, bonds and real estate.
Growth in liquid alternatives has been driven in part by financial advisers, who may use the funds as part of an overall portfolio allocation strategy. Nearly three quarters of financial advisers currently use alternative strategies, according to a study by Financial Advisor Magazine, and they continue to expand their allocations.
“Many individuals are just beginning to learn the role alternatives can play in a portfolio,” says Patti. “The adviser community has been critical in helping their clients understand how alternatives can navigate the markets in times of heightened volatility and uncertainty. This education process is critical to the continued growth of the asset class.”