Late Cycle Investing
The current economic expansion is now more than 10 years old, making it the longest period of continued growth on record by some measures. While economists like to say that expansions don’t die of old age, common sense suggests that we are getting closer to the next downturn. Recessions are often a result of policy mistakes, and the likelihood of these mistakes being made rises over time.
Still, while the data shows signs of slowing, the outlook remains mostly positive. The first reading on 2Q GDP came in at 2.1%, down from 1Q (Source: Bureau of Economic Analysis), but in line with the average over the last decade. Consumer spending has been robust. Unemployment remains near record low levels. On the opposite side of the coin, while the Federal Reserve just cut interest rates for the first time since 2008, market reaction, at least in the first few days, was decidedly negative. And after a brief respite, the U.S. and China are back to slapping new tariffs on one another.
So the signals are mixed but, taken as a whole, circumstances suggest some caution may be warranted. Many liquid alternative funds are designed for just this kind of investing environment, including the IQ Hedge Multi-Strategy Tracker ETF (QAI). As its name implies, QAI seeks to capture the returns of multiple hedge fund strategies. This includes long/short and fixed income arbitrage, among others. It is intended as a conservative “core” holding with a low correlation to the broader market as represented by the S&P 500 Index. Among the typical holdings may be short-term Treasuries, investment grade corporate bonds, bank loans, and investment grade floating-rate debt, in addition to equities, providing a level of income while adding diversification.
The current bull market is one that has spent much of its time climbing the proverbial “wall of worry.” Skeptics have abounded from the start and continue to question its ability to go on. Yet the S&P 500 Index has more than tripled in value since the Financial Crisis. Those who spent the last decade on the sidelines have missed a significant opportunity to grow their wealth. So, it’s possible that stocks still have room to run. For those concerned about where we are in the investing cycle, liquid alts – multi-strategy, market neutral, even merger arbitrage – can provide a hedge in the classic sense: exposure to market upside, while offering a potential cushion against a downturn.
Past performance is no guarantee of future results, which will vary. All investments are subject to market risk and will fluctuate in value.
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.
Before considering an investment in the Fund, you should understand that you could lose money.
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.
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Hedged: A hedge is an investment to reduce the risk of adverse price movements in an asset. Normally, a hedge consists of taking an offsetting position in a related security.
The S&P 500 Index is an American stock market index based on the market capitalizations of 500 large companies having common stock listed on the NYSE, NASDAQ, or the Cboe BZX Exchange.
“New York Life Investments” is both a service mark, and the common trade name, of the 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.