QAI is Turning 10

by: , Chief Investment Officer and Managing Director | IndexIQ

Ten years ago, a startup firm had an interesting idea: provide investors with a low cost, transparent, highly liquid tool that would allow them to add hedge fund-like exposure to their portfolios. This firm thought it had a great idea. It also had no clients, no assets, no other products on the market, and it was planning to package this approach in the still relatively novel and niche “ETF” structure. Oh, and it was coming to market when fears of a complete global market collapse were still very fresh.

No problem

Fast forward to 2019, and the fund that was built out of that idea, the IQ Hedge Multi-Strategy Tracker ETF (QAI), is turning 10 years old on March 25th. With all the ETFs that have been introduced since, it’s hard to remember just how revolutionary this fund was, and still is. But at that time, to gain exposure to the kinds of strategies incorporated into QAI you generally had to be a “qualified” investor, be willing to lock up your money for a long period of time, be open to taking on significant idiosyncratic manager risk, and accept fees as high as 2%, with 20% of the profits going to the fund manager.

QAI changed all that

It was built on an index that was designed 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. It did not invest directly in hedge funds or include hedge funds as components. It was liquid, trading like a stock on the exchange. It was transparent. Perhaps best of all, its fees were significantly lower than anything charged by a traditional hedge fund.

Back then, myself and rest of the IndexIQ team, in full startup mode, talked to any and every investor and advisor we could, describing what we had created as “democratizing” access to alternative investments. There were a lot of doubters.

Most ETFs to that point were designed to replicate broad-based markets like the S&P 500 or the biggest 100 stocks in the Nasdaq. This was something different, and the role it was designed to play in a portfolio was different, too. It was not meant, as some thought, as an “absolute return” vehicle. Instead, it was designed to give investors exposure to the market while providing risk mitigation.

It wouldn’t be quite right to say that QAI found a big audience right out of the gate. Remember this was 2009. How much more downside was even left to endure at that point? It took time to educate the market on the concept and how the fund was designed to be used. But as that became clearer, advisors and individual investors responded, and the startup became the established leader in what has become a vibrant category of liquid alternative approaches.

Over time, we’ve seen investors vote with their portfolios – through February 28, 2019, QAI has grown to more than $1 billion in assets, as investors have been drawn to the fund’s track record of delivering market exposure with generally low volatility and competitive performance during volatile times.

We’re not the startup anymore

As the fund hits this 10-year mark, I find myself thinking back on those early days and looking at all we’ve accomplished with IndexIQ since then. We’re not the startup anymore. In fact, we’re now part of a leading global asset management organization with over $550 billion in assets under management.1 It’s a far cry from those early days, but our entrepreneurial spirit remains the same. QAI was that first proof point and it’s what helped put IndexIQ on the radar of so many advisors, investors and institutions. It wasn’t always an easy journey, but we’re thrilled with where we are and what we’ve accomplished, and my colleagues and I still have that entrepreneurial spirit, so I’m just as excited about what the next decade is going to see us bring to the marketplace.

1. AUM includes assets of Investment Advisors affiliated with New York Life Insurance Company as of January 31, 2019. AUM for Candriam and Ausbil is reported at the spot rate.

The S&P 500® Index is widely regarded as the standard index for measuring large-cap U.S. stock market performance.

Beta is a measure of volatility that compares a stock’s movements relative to the overall market, or a certain stock index.

About risk

Past performance is no guarantee of future results, which will vary. All investments are subject to market risk and will fluctuate in value.

QAI: 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.

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 a service mark and name under which New York Life Investment Management LLC does business. New York Life Investments, an indirect subsidiary of New York Life Insurance Company, located at 51 Madison Avenue, New York, NJ 10010, provides investment advisory products and services. 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. 1808195

Salvatore J. Bruno

Chief Investment Officer and Managing Director | IndexIQ

Sal is Chief Investment Officer at IndexIQ, where his primary responsibility includes developing and maintaining the firm’s investment strategies. Sal joined IndexIQ in 2007 from Deutsche Asset Management (DeAM) where he held a number of senior positions

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