Investing in Hedge Fund ETFs Made Easy

Investing in hedge fund ETFs can be a great way to diversify your portfolio and potentially earn higher returns.

Hedge fund ETFs offer a low-cost alternative to traditional hedge funds, which can have high minimum investment requirements and fees.

You can invest in hedge fund ETFs through a brokerage account or a robo-advisor, making it easy to get started.

Some popular hedge fund ETFs include the ProShares Long/Short ETF (PSL) and the Global X Hedge Fund ETF (GDX).

ETFs, or Exchange-Traded Funds, are a type of investment that allows you to diversify your portfolio with a single trade.

More than 30 actively managed ETFs employ hedge fund-like strategies.

These funds are designed to track a specific index, sector, or asset class, making it easy to add some variety to your investment mix.

Like conventional hedge funds, some ETF managers focus on a single strategy, while others take a multi-strategy approach.

In total, these funds have amassed $6 billion in assets, a significant chunk of the investment world.

The average expense ratio for these ETFs is a relatively low 0.8%, which is a fraction of what you'd pay for some other investment options.

Popular Strategy-Based ETFs are a great way to invest in a variety of hedge fund strategies. These ETFs employ strategies like Covered Calls, Managed Futures, Risk Parity, and Merger Arbitrage to generate returns.

Some of these ETFs have impressive year-to-date (YTD) total returns, with the Simplify Interest Rate Hedge ETF (PFIX) leading the pack at 36.2%. This ETF has an AUM of $136M and an expense ratio of 0.50%.

The Global X Russell 2000 Covered Call ETF (RYLD) is another popular option, with an AUM of $1.42B and a YTD total return of 1.5%. It's worth noting that this ETF is actively managed, but it doesn't use a hedge fund strategy.

Here are some key statistics for these ETFs:

These statistics demonstrate the diversity of hedge fund strategies available through ETFs.

The NYLI QAI Multi-Strategy Tracker ETF is a unique investment option that tracks a rules-based index of multi-strategy hedge funds. It's designed to provide broad diversification across various hedge fund strategies.

This ETF is actively managed by the QMA team, who have a proven track record of success in managing hedge fund portfolios. They utilize a rules-based approach to select the underlying hedge funds, which helps to minimize bias and increase transparency.

The NYLI QAI Multi-Strategy Tracker ETF is designed to provide a diversified portfolio of hedge funds, with a focus on strategies that have historically performed well in various market conditions. It's a great option for investors who want to gain exposure to hedge fund strategies without having to pick individual funds.

If you're not convinced by the top strategy-based ETFs, there are other options worth considering.

The iShares MSCI ACWI ex US ETF (ACWX) is a great alternative for investors looking to diversify their portfolios.

This ETF tracks the MSCI ACWI ex US Index, which covers developed and emerging markets outside the US, and has a low expense ratio of 0.34%.

The Vanguard FTSE Emerging Markets ETF (VWO) is another option for those seeking exposure to emerging markets.

With over $50 billion in assets under management, VWO is one of the largest ETFs in its category.

ETFs have made it possible for investors to access a wide range of strategies, including hedge fund strategies, at a lower cost. The total expense ratio of hedge fund ETFs is 0.93% on average, which is significantly below hedge fund fees.

Innovative strategies like biblically responsible and marijuana ETFs are available, but hedge fund ETFs have only captured 1% of hedge fund assets. This is surprising, given the growth of the hedge fund industry, which now manages more than $3 trillion.

Investors can choose from five types of hedge fund ETFs: hedge fund index replicators, long-short equity, equity market neutral, merger arbitrage, and managed futures.

The S&P 500 index is up 6.75% between January 1 and April 15, 2024, but only 25% of hedge fund ETFs posted higher returns over the same timeframe.

Most hedge fund managers claim that total returns aren't a good benchmark, instead focusing on risk-adjusted returns over time.

The average one-year return for hedge fund ETFs is about 9.97%, which is lower than the S&P 500 index's 22% return.

Many hedge fund ETFs have only been around a few years, making it difficult to determine their performance during major downturns.

The Alpha Architect Tail Risk ETF (CAOS) aims to earn positive returns during significant market downturns, as seen during the COVID-19 pandemic in February-March 2020.

CAOS's net asset value sharply increased during the pandemic, despite the S&P 500 falling sharply lower.

However, CAOS missed out on the significant subsequent gain in the S&P 500 during the COVID-19 recovery.

If you're considering investing in ETFs, you might be wondering if hedge fund ETFs are a good option. They may not offer the same track records as top hedge funds.

Hedge fund ETFs provide exposure to popular hedge fund strategies that could help reduce risk and improve risk-adjusted returns. However, they might not necessarily beat the market in total return.

For risk-averse investors, hedge fund ETFs with buffer or tail risk strategies can limit downside risk, even if it means less returns during a bull market. This can be a good option for those who want to preserve their capital.

If you want to beat the market in total return over the long haul, you might want to stick with passively managed funds with lower expenses.

ETFs are essentially baskets of securities that track a specific index, sector, or asset class, allowing investors to gain exposure to a particular market or strategy.

These baskets are created and managed by investment companies, such as BlackRock, which is the largest ETF issuer in the world.

Investors can buy and sell ETF shares on major stock exchanges, just like individual stocks.

ETFs can be designed to track a wide range of assets, including stocks, bonds, commodities, and currencies.

They can also be used to implement various investment strategies, such as hedging, diversification, and leverage.

ETFs are traded on major stock exchanges, just like individual stocks, and their prices are determined by supply and demand in the market.

They track a specific index, sector, or asset class, allowing investors to gain exposure to a particular area of the market.

The value of an ETF is calculated by adding up the value of the underlying assets it holds.

Each ETF has a unique ticker symbol, making it easy to identify and trade.

Investors can buy and sell ETFs through a brokerage account, just like individual stocks.

ETFs have been able to mimic the performance of hedge funds, with some even matching their benchmarks. Core hedge fund strategies are now available as low-cost and transparent ETFs.

The performance of hedge fund ETFs has been comparable to that of their benchmarks, which is a significant achievement. This is a stark contrast to the retail industry, where Amazon has disrupted traditional businesses over the last two decades.

Hedge fund ETFs have only captured 1% of hedge fund assets, despite offering a similar investment strategy. This suggests that investors are still hesitant to adopt ETFs as a replacement for traditional hedge funds.

Here are the five types of hedge fund ETFs that are currently available in the US:

The average total expense ratio for these ETFs is 0.93%, which is significantly lower than the fees charged by traditional hedge funds.

ETFs have become a popular choice for investors looking for low-cost and transparent alternatives to traditional hedge funds. They offer a range of strategies, including covered calls, managed futures, risk parity, and merger arbitrage.

The largest hedge fund ETFs have AUM ranging from $136M to $33B, with expenses between 0.50% and 0.85%. The Simplify Interest Rate Hedge ETF (PFIX) is one of the most successful, with a YTD total return of 36.2%.

Some of the most popular hedge fund ETFs include the iMGP DBi Managed Futures Strategy ETF (DBMF), the JPMorgan Equity Premium Income ETF (JEPI), and the SPDR SSGA Multi-Asset Real Return ETF (RLY). These funds employ various strategies, such as managed futures, risk parity, and merger arbitrage.

The total expense ratio of hedge fund ETFs is 0.93% on average, which is significantly lower than hedge fund fees. This makes ETFs an attractive option for investors looking to replicate hedge fund strategies at a lower cost.

Here are some of the key characteristics of the largest hedge fund ETFs:

ETFs have not yet captured a meaningful portion of the $3 trillion managed by hedge funds, but they offer a low-cost and transparent alternative for investors.

If you're interested in exploring hedge fund ETFs, there are several options to consider.

One such option is the Simplify Managed Futures Strategy ETF (CTA), which has a net asset value of $466,337,673 and was launched on March 7, 2022.

Another option is the Simplify High Yield PLUS Credit Hedge ETF (CDX), which has a net asset value of $119,323,946 and was launched on February 14, 2022.

You can also consider the Simplify Treasury Option Income ETF (BUCK), which has a net asset value of $271,430,291 and was launched on October 27, 2022.

These ETFs offer a range of investment strategies and asset classes to choose from.

Here are some of the categories that hedge fund ETFs fall under, based on the data:

It's worth noting that there are 27 categories in total, and you can explore each one to find the best fit for your investment goals.

The Simplify Hedged Equity ETF (HEQT) has a net asset value of $294,050,583 and was launched on November 1, 2021, and it's a great example of a hedged equity ETF.

The Simplify Short Term Treasury Futures Strategy ETF (TUA) has a net asset value of $525,933,316 and was launched on November 14, 2022, and it's a great example of a short-term treasury futures strategy ETF.

The Simplify Aggregate Bond ETF (AGGH) has a net asset value of $258,358,928 and was launched on February 14, 2022, and it's a great example of a core bond ETF.

These are just a few examples of the many hedge fund ETFs available, and you can explore each one to find the best fit for your investment goals.

By considering these options and exploring the various categories, you can make an informed decision about which hedge fund ETF is right for you.