Following the successful launch of the UBS HFRX Global Hedge Fund ETF in December 2010, Swiss investment giant UBS and hedge fund index specialists Hedge Fund Research (HFR) have announced the launch of four hedge fund strategy ETFs.
The four ETFs, which are referenced to HFRX sub-strategy indices, offer investors the opportunity to participate in the performance of specific hedge fund strategies within a liquid, UCITS-compliant vehicle.
In contrast to most existing hedge fund index ETFs, which typically track a broad cross-section of hedge fund strategies, these latest UBS ETFs enable investors to gain targeted exposure to particular hedge fund strategies, including equity hedge, event driven, relative value arbitrage and macro CTA.
Commenting on the launch, Clemens Reuter, Head of UBS ETFs, said: ”The launch of the HFRX sub strategies are a natural extension to our existing HFRX Global Hedge Fund ETF. We are responding to client demand for such an offering and so are very pleased to be at the cutting edge of such developments, whilst working in close partnership with the acknowledged alternative indices experts, HFR”.
Kenneth Heinz, President of HFR, said: “Hedge fund strategy ETFs are a tactical necessity for both retail and institutional allocators, even more pronounced in today’s volatile financial environment. The HFRX Strategy ETFs allow investors to establish and maintain exposure to core hedge fund strategy areas, also enhancing and complementing traditional portfolio exposures.”
With performance dating back to 1998, the HFRX indices are among the most widely recognisable hedge fund indices. They are seen as a sound measure of aggregate hedge fund performance. In order to be considered for inclusion into a HFRX index, a hedge fund must be currently open to new investment, maintain a minimum asset size (typically $50 Million) and meet the duration requirement (generally, a 24 month track record).
The four ETFs (detailed below), which have been listed on the Deutsche Börse (Xetra), employ a collateralised swap-based replication methodology to deliver exposure to the relevant HFRX reference index.
Each ETF comes with a TER of 1.5%. While this may seem competitive for a product offering hedge fund exposure, investors should be aware that the performance of HFRX indices is net of both underlying hedge fund fees (typically 2% management fee and 20% performance fee) and an index fee of 0.3%.
UBS-ETF HFRX Equity Hedge Index SF (UIQ6)
Referenced to the HFRX Equity Hedge Index. Hedge funds within the Equity Hedge category typically employ quantitative and fundamental approaches to invest primarily in equities and equity derivatives, taking both long and short positions.
UBS-ETF HFRX Event Driven Index SF (UIQ7)
Referenced to the HFRX Event Driven Index. Hedge funds within the Event Driven category typically focus on companies that are undergoing change, for example, due to mergers, restructuring measures, financing difficulties, takeover offers, share buy-back programmes or security issues.
UBS-ETF HFRX Relative Value Arbitrage Index SF (UIQ8)
Referenced to the HFRX Relative Value Arbitrage Index. Hedge funds within the Relative Value Arbitrage category typically take advantage of price inefficiencies between securities linked to each other. These may be equities, bonds, derivatives or other groups of instruments.
UBS-ETF HFRX Macro CTA Index SF (UIQ5)
Referenced to the HFRX Macro CTA Index. Hedge funds within the Macro CTA category typically take key economic indicators and their impact on equity, bond, currency and commodity markets into account. In selecting individual instruments, fund managers perform discretionary as well as systematic analyses, use top-down and bottom-up techniques, take qualitative and fundamental approaches, and go long and short.