Sal Bruno, CIO, IndexIQ sat down with Julie Cooling, Founder & CEO, RIA Channel to discuss three ETFs advisors can use to counteract volatility in the market.
A big theme for the second half of 2018 is finding ways to “dampen” volatility for investors, says Bruno in reference to IndexIQ’s 2018 Midyear outlook. Their IQ Merger Arbitrage ETF (MNA) could be just the ticket. Due to its low correlation to the equity market & low beta, it offers downside protection, while still capturing premium on M&A activity. From the 2009 launch, MNA has enjoyed steady growth. However, within the last several years the ETF has seen an influx of over $450 million into the fund. Today, MNA has gathered $598 million in assets. Bruno attributes the spike in client interest to recent accelerated merger activity.
The rules-based methodology behind MNA “systematically focuses on announced target companies.” Instead of hedging the acquirer, the fund hedges the aquirer’s sector. This strategy allows for more upside participation, while also offering downside protection if there’s a major event, explains Bruno.
The second ETF on the list, QAI, is IndexIQ’s largest and oldest ETF at $1.15 billion in assets. IQ Hedge Multi-Strategy Tracker ETF (QAI) offers downside protection by mimicking exposure that hedge funds have in different asset classes. These exposures are determined through analysis of hedge fund return patterns. “This ETF has been very popular with investors,” says Bruno.
On the fixed-income side, IQ S&P High Yield Low Volatility Bond ETF (HYLV) seeks to separate the high-yield “universe” into the lowest and highest risk names. With over $87 million in assets since launch in 2017, this rules-based ETF can be used to lower core beta, while still maintaining exposure to high-yield.
To learn more about the three ETFs covered above, head to IQETFs.com.