What keeps advisors up at night? When it comes to the markets, equity valuations top the list, according to a recent survey of IndexIQ webinar attendees. To the question, “What are you most concerned with in the current market environment?” more than 40% of advisors responded with valuations, followed by rising interest rates (21%) and its corollary inflation (18%). Volatility, at 19%, was also a worry.
Liquid alternatives are viewed as one way to help address this. In that same survey, when asked “What is your primary goal for using liquid alternatives?”, just under 36% of advisor respondents indicated they use this asset class to seek better risk-adjusted returns, while 30% cited lower correlations as the main reason for employing liquid alts. Just 5.2% were seeking high return potential. This is consistent with the evolving industry view, in which liquid alternatives are seen less as a source of alpha, and more as vehicle for diversifying and managing downside risk.
Liquid alts serve different roles in an alternatives portfolio and we view them as falling into three broad categories:
Accessing all these strategies has become much simpler and less costly in recent years as the number of alternative mutual funds and Exchange-Traded Funds (ETFs) has grown. Morningstar estimates there are about 1245 funds available with $273 billion in assets under management as of June 7, 2021. If anything, this represents an embarrassment of riches and makes the task of selecting the right funds and the right strategies more complex for advisors.
As the oldest and one of the largest sponsors of liquid alt ETFs, we believe we add value to investors in the asset class both through our experience and through the broad range of strategies we offer. The ETF structure helps address three additional concerns expressed by advisors in our survey – manager selection, access to strategies, and portfolio implementation – while providing transparency and potential tax advantages. ETFs can be used to replicate most of the major strategies and are manager agnostic. The construction process is transparent: the ETF portfolio is the strategy and its holdings are disclosed.
Three funds in our family have particular relevance now, given advisor concerns over rising interest rates and inflation. The first is the IQ Merger Arbitrage ETF (MNA), which has historically demonstrated a low correlation to the broader equity and a slightly negative correlation to fixed income market indices. This means that MNA tended to go up as bond prices fell (or interest rates rise) which gave it the further benefit of potentially mitigating duration risk when added to a core bond allocation.
The second is our oldest fund, the IndexIQ Liquid Alt ETF (QAI), which launched in 2009, seeks investment results that track, before fees and expenses, the price and yield performance of the IQ Hedge Multi-Strategy Index. The IQ Hedge Multi-Strategy Index attempts to replicate the risk-adjusted return characteristics of hedge funds using multiple hedge fund investment styles, including long/short equity, global macro, market neutral, event-driven, fixed-income arbitrage, and emerging markets. Multi-strategy liquid alts funds have historically demonstrated a low beta to equity markets and have the potential to provide a cushion against losses during periods of volatility.
The third is the IQ Global Resources ETF (GRES). Commodities are typically viewed as a powerful asset class to hedge against inflation risks. GRES provides exposure to commodities through equities that are principally engaged in 8 different commodity sectors: Energy, Industrial Metals, Precious Metals, Agriculture, Livestock, Timber, Water and Coal.
Also on the inflationary front, the IQ Real Return ETF (CPI) is a multi-asset fund. The fund seeks investment results that track, before fees and expenses, the price and yield performance of the IQ Real Return Index. The IQ Real Return Index seeks to provide investors with a hedge against the U.S. inflation rate by providing a "real return," or a return above the rate of inflation, as represented by the Consumer Price Index (the "CPI").
There is always something to keep advisors up at night. Valuations will fluctuate. Inflation may or may not turn out to be a long-term problem. But the availability of tools like liquid alts opens the door to new possibilities for helping to manage these worries. Advisors are taking note.
Past performance is no guarantee of future results, which will vary. All investments are subject to market risk and will fluctuate in value.
Diversification cannot assure a profit or protect against loss in a declining market.
Click on the fund name for the most current fund page, which includes, the prospectus, investment objectives, performance, risk, and other important information. Returns represent past performance which is no guarantee of future results. Current performance may be lower or higher. Investment return and principal value will fluctuate, and shares, when redeemed, may be worth more or less than their original cost. Visit nylinvestments.com/etfs and nylinvestments.com/funds and for the most recent month-end performance.
Correlation is a statistic that measures the degree to which two securities move in relation to each other.
Liquid alternative investments (or liquid alts) are mutual funds or exchange-traded funds (ETFs) that aim to provide investors with diversification and downside protection through exposure to alternative investment strategies such as private equity or venture capital, hedge funds, managed futures, art and antiques, commodities, and derivatives contracts.
Risk-adjusted return is a calculation of the profit or potential profit from an investment that takes into account the degree of risk that must be accepted in order to achieve it. The risk is measured in comparison to that of a virtually risk-free investment—usually U.S. Treasuries.
Beta is a measure of historical volatility relative to an appropriate index (benchmark) based on its investment objective. A beta greater than 1.00 indicates volatility greater than the benchmark’s.
IQ Merger Arbitrage ETF: Certain of the proposed takeover transactions in which the Fund invests may be renegotiated, terminated or involve a longer time frame than originally contemplated, which may negatively impact the Fund’s returns. The Fund’s investment strategy may result in high portfolio turnover, which, in turn, may result in increased transaction costs to the Fund and lower total returns. Foreign securities are subject to interest rate, currency exchange rate, economic, and political risks. These risks may be greater for emerging markets. Diversification does not eliminate the risk of experiencing investment losses. Stock prices of mid and small capitalization companies generally are more volatile than those of larger companies and also more vulnerable than those of larger capitalization companies to adverse economic developments. The Fund is non-diversified and is susceptible to greater losses if a single portfolio investment declines than would a diversified fund. The ETF should be considered a speculative investment with a high degree of risk, does not represent a complete investment program and is not suitable for all investors. The Fund may experience a portfolio turnover rate of over 100% that will increase transaction costs and may generate short-term capital gains which are taxable. Short sales are transactions in which the Fund sells a security it does not own, or uses derivatives, such as futures or swaps, to effect short exposure to a particular reference asset. Short positions pose a risk because they lose value as a security's price increases; therefore, the loss on a short sale is theoretically unlimited. As a result, these funds may not be suitable for all investors.
IQ Hedge Multi Strategy Tracker ETF: The Fund's investment performance, because it is a fund of funds, depends on the investment performance of the underlying ETFs in which it invests. There is no guarantee that the Fund itself, or any of the ETFs in the Fund's portfolio, will perform exactly as its underlying index. The Fund’s underlying ETFs invest in: foreign securities, which are subject to interest rate, currency exchange rate, economic, and political risks. These risks may be greater for emerging markets. Fixed income securities also carry inflation risk, liquidity risk, call risk and credit and default risks for both issuers and counterparties. Unlike individual bonds, most bond funds do not have a maturity date, so avoiding losses caused by price volatility by holding them until maturity is not possible. In general the bond market is volatile, and fixed income securities carry interest rate risk. (As interest rates rise, bond prices usually fall, and vice versa. This effect is usually more pronounced for longer-term securities.) Leverage, including borrowing, will cause some of the Fund’s underlying ETFs to be more volatile than if the underlying ETFs had not been leveraged. The Fund may experience a portfolio turnover rate of over 100% that will increase transaction costs and may generate short-term capital gains which are taxable.
IQ Global Resources ETF: As the Fund’s investments are concentrated in the global resources sector, the value of its shares will be affected by factors specific to that sector and generally will fluctuate more widely than that of a fund which invests in a broad range of industries. The Fund is susceptible to foreign securities risk. Since the Fund invests in foreign markets, it will be subject to risk of loss not typically associated with domestic markets. Loss may result because of less foreign government regulation, less public information, less economic, political and social stability, or other factors. Investing in smaller companies involves special risks, including higher volatility and lower liquidity. Investing in mid-cap stocks may carry more risk than investing in stocks of larger, more well-established companies. The Fund may experience a portfolio turnover rate of over 100% that will increase transaction costs and may generate short-term capital gains which are taxable.
This material represents an assessment of the market environment as at a specific date; is subject to change; and is not intended to be a forecast of future events or a guarantee of future results. This information should not be relied upon by the reader as research or investment advice regarding the funds or any issuer or security in particular.
The strategies discussed are strictly for illustrative and educational purposes and are not a recommendation, offer or solicitation to buy or sell any securities or to adopt any investment strategy. There is no guarantee that any strategies discussed will be effective.
This material contains general information only and does not take into account an individual's financial circumstances. This information should not be relied upon as a primary basis for an investment decision. Rather, an assessment should be made as to whether the information is appropriate in individual circumstances and consideration should be given to talking to a financial advisor before making an investment decision.
Consider the Funds' investment objectives, risks, charges and expenses carefully before investing. The prospectus and the statement of additional information include this and other relevant information about the Funds and are available by visiting IQetfs.com or calling (888) 474-7725. Read the prospectus carefully before investing.
“New York Life Investments” is both a service mark, and the common trade name, of certain investment advisors affiliated with New York Life Insurance Company. IndexIQ® is an indirect wholly owned subsidiary of New York Life Investment Management Holdings LLC and serves as the advisor to the IndexIQ ETFs. ALPS Distributors, Inc. (ALPS) is the principal underwriter of the ETFs. NYLIFE Distributors LLC is a distributor of the ETFs. NYLIFE Distributors LLC is located at 30 Hudson Street, Jersey City, NJ 07302. ALPS Distributors, Inc. is not affiliated with NYLIFE Distributors LLC. NYLIFE Distributors LLC is a Member FINRA/SIPC.