RYE BROOK, N.Y.--(BUSINESS WIRE)--IndexIQ, a leading developer of liquid alternative investment solutions, has seen assets in its exchange traded funds (ETFs) grow by approximately 46%, and total firm assets under management and under advisement increase by almost 40% in 2014 to over $1.6 billion, led by the IQ Hedge Multi-Strategy Tracker ETF (QAI), it was announced today. QAI was the first, and remains the largest, liquid alternative ETF.
Five IndexIQ ETFs marked their fifth anniversaries in 2014, including QAI, which turned five on March 25th. The IQ Hedge Macro Tracker ETF (NYSE Arca: MCRO) turned five on June 9th. The IQ Merger Arbitrage ETF (NYSE Arca: MNA), the first ETF designed to give investors exposure to the global corporate mergers and acquisitions (M&A) marketplace, turned five on November 17th, while the IQ Global Resources ETF (NYSE Arca: GRES), the first global resources hedged ETF, and the IQ Real Return ETF (NYSE Arca: CPI), which uses a multi-asset class approach in seeking to deliver a “real return” above the U.S. inflation rate, both reached the five-year mark on October 27th. IndexIQ’s IQ US Real Estate Small Cap ETF (ROOF) turned three years old in June. IQ Global Agribusiness Small Cap ETF (NYSE Arca: CROP), turned three years old in April, while the firm’s IQ Alpha Hedge Strategy Fund (IQHIX – Institutional Class; IQHOX – Investor Class), the first no-load, open-end hedge fund replication mutual fund, turned six years old in June.
In September, IndexIQ announced that it had significantly expanded access to its funds with the news that Charles Schwab was adding five IndexIQ ETFs to its ETF OneSource platform. The funds now available through the OneSource platform are:
- IQ Hedge Multi-Strategy Tracker ETF (NYSE Arca: QAI);
- IQ Hedge Market Neutral Tracker ETF (NYSE Arca: QMN) the first market neutral ETF;
- IQ Merger Arbitrage ETF (NYSE Arca: MNA), the first merger arbitrage ETF;
- IQ Global Resources ETF (NYSE Arca: GRES), the first hedged global natural resources ETF; and
- IQ Global Agribusiness Small Cap ETF (NYSE Arca: CROP), the first agribusiness small cap ETF.
Model portfolios continue to grow
IndexIQ, as one of the industry’s first “ETF Strategists” and the only firm focused on the alternative space,1 continued to see growth in its ETF model portfolio business during 2014. In addition, IndexIQ experienced an increasing number of strategists and other third parties adding the firm’s ETFs to their models throughout the year. As of the end of the third quarter, Morningstar reported tracking 677 strategies from 143 firms with $96 billion in assets under management. IndexIQ benefited from this growing trend, with year-over-year model portfolio assets climbing by approximately 47% as of December 31, 2014.
“We believe that the ETF Model business is increasingly important to advisors seeking turn-key investment management solutions. We serve this market both as an ETF Model provider, as well as by working with other ETF Model providers to use our ETFs as building blocks for their portfolios. We are seeing a number of our ETFs added to advisor models as the funds of choice for providing exposure to liquid alternatives,” said Adam Patti, chief executive officer at IndexIQ. “We believe these portfolios represent a substantial growth opportunity for us going forward.”
QAI – pioneering an industry
The first liquid alternative ETF (QAI) pioneered what is now a multi-billion product category. It seeks to track, before fees and expenses, the performance of the IQ Hedge Multi-Strategy Index. The Index, part of a family of investable benchmark hedge fund replication indexes that have been calculating live since 2007, attempts to replicate the risk-adjusted return characteristics of hedge funds using various hedge fund investment styles, including long/short equity, global macro, market neutral, event-driven, fixed income arbitrage and emerging markets.
“At its introduction, QAI led the way in demonstrating the role alternatives can play in an investor’s portfolio,” said Patti. “Since that time, the category has seen tremendous growth in both assets and funds, but our fund remains the first, and the largest. QAI is now widely considered the ‘S&P 500 of the hedge fund market.’ QAI grew its assets by approximately 57% in 2014. QAI offers investors a way to carve off exposure to their traditional fixed income investments, yet be in a product that is designed to experience price appreciation in a rising rate environment.”
MNA – 2014 was a big year for mergers and acquisitions; IndexIQ provides exposure
“We designed MNA and its underlying index to provide investors with broad-based exposure to the global M&A market,” said Patti. “This year has been one of the strongest on record for M&A activity, a trend that appears likely to continue into 2015. Our MNA ETF grew its assets by approximately 239% in 2014, and now with a 5-year track record, MNA is ready to scale.”
MNA was designed to provide capital appreciation by investing in global companies for which there has been a public announcement of a takeover by an acquirer, a strategy generally known as “merger arbitrage.” This strategy generally seeks to take advantage of the price differential, where it exists, between the current trading price of a stock and the price of that stock at the time the deal is completed. It seeks to track, before fees and expenses, the performance of the IQ Merger Arbitrage Index.
ROOF – small-cap REIT exposure proved to be a strong play in 2014
“Investors had long been told the benefits of diversifying into real estate as a means of accessing potential yield and outperformance, but adding exposure to small-cap REITs was something that investors and advisors had long found particularly difficult until we introduced our IQ U.S. Real Estate Small Cap ETF,” said Patti. “Investors have recognized the benefits that ROOF brings to their portfolios, which has translated into asset growth in the ROOF ETF of approximately 98% in 2014.”
The first ETF to focus entirely on small-cap US REITs, ROOF seeks to replicate, before fees and expenses, the performance of the IQ US Real Estate Small Cap Index, a float-adjusted, market-cap weighted index that seeks to track the overall performance of small-capitalization US real estate companies.
GRES – expansive exposure to global resources and commodities in liquid, transparent vehicle
“GRES was designed as a vehicle for providing the broadest possible exposure to global commodities with relatively low volatility,” said Patti. “Over the past five years, we have seen substantial ups and downs in commodities and, throughout this timeframe, GRES has performed as we had hoped. We believe the long-term trends favoring growth in demand for this asset class remain intact.”
GRES seeks investment results that correspond, before fees and expenses, to the price and yield performance of the IQ Global Resources Index. GRES provides broad-based exposure across eight sectors of the Commodity and Global Natural Resources space, including the major commodity sectors (Precious Metals, Industrial Metals, Livestock, Energy, and Grains, Food & Fiber), plus Timber, Water and Coal. The fund is diversified geographically and by sector, with its components collectively representing one of the broadest commodity and natural resource exposures in the ETF industry. The fund has no K-1 and does not suffer from contango and backwardation.
CPI – multi-asset class approach to seek a “real return” above the U.S. inflation rate
“Five years ago, when we looked at the landscape of inflation hedging products, we believed there was an opportunity to improve on what was then available to investors,” said Patti. “In our view, Treasure Inflation Protected Securities (TIPS), gold, and real estate all had weaknesses individually as inflation hedges. Our approach is built upon exposure to multiple asset classes, which we believe is a better way to achieve investor objectives.”
CPI seeks investment results that correspond, before fees and expenses, to the price and yield performance of the IQ Real Return Index. The Index provides exposures to asset classes whose returns are believed to incorporate inflation expectations, and may include gold, U.S. treasuries, emerging markets equities, and real estate, among others.
MCRO – offering market exposure and downside mitigation in volatile markets
“We designed MCRO to be a low volatility vehicle offering investors downside mitigation during market declines while also allowing them to remain exposed to global equities,” Patti said. “It’s a strategy that we thought was highly relevant when we introduced the fund and that is even more relevant today, with markets setting new highs.”
MCRO seeks to replicate, before fees and expenses, the performance of the IQ Hedge Macro Index, part of the firm’s innovative IQ Hedge family of investable benchmark hedge fund replication and alternative beta indexes. The index, which now has close to six years of live track record, attempts to replicate the risk-adjusted return characteristics of the universe of hedge funds pursuing a global macro strategy, which can often include international and emerging markets components.
IndexIQ Joins with New York Life Investment Management
On December 4th, it was announced that IndexIQ will be acquired by New York Life Investment Management (NYLIM). The combination of these two companies brings NYLIM’s powerful global asset management franchise and distribution platform together with IndexIQ’s proven ability to launch sophisticated alternative ETF products. The transaction is scheduled to be completed in the second quarter of 2015.
“NYLIM is a terrific partner for us,” Patti said at the time of the announcement. “Pairing our innovative history and experience in the ETF market, with New York Life’s commitment, resources and reach positions us to continue our leadership in the ETF marketplace, accelerate our development of both alternative and smart beta solutions, and together revolutionize the industry.”
IndexIQ indexes underlie a variety of investment products, including ETFs, mutual funds, and institutional accounts. IndexIQ products are designed to be liquid, transparent, low cost,* and accessible to a broad range of investors. In addition to the funds mentioned above, the IndexIQ family includes:
- IQ Global Oil Small Cap ETF (NYSE Arca: IOIL), the first global oil small cap ETF;
- IQ Canada Small Cap ETF (NYSE Arca: CNDA), the first Canada small cap ETF;
- IQ Australia Small Cap ETF (NYSE Arca: KROO), the first Australia small cap ETF.
IndexIQ is a leading issuer of liquid alternative solutions focused on absolute return, real asset and international strategies. IndexIQ solutions are offered as ETFs, Mutual Funds, Separate Accounts and Model Portfolios. IndexIQ’s philosophy is to democratize investment management by making innovative alternative investment strategies available to investors in low cost, liquid and transparent products.* Additional information about the company and its products can be found at www.IndexIQ.com.
*IndexIQ’s ETF holdings are available daily on IndexIQ’s website. Brokerage commissions apply to ETFs. ETFs are liquid in that they are exchange-traded.
1) Morningstar ETF model portfolio database.
Investors in GRES do not receive K-1s for tax reporting purposes, as do investors in other commodities and natural resources investments. GRES distributes a single Form 1099 to its shareholders. Contango (backwardation) occurs when the futures price is above (below) the expected future spot price, resulting in the price declining (rising) to the spot price before the delivery date.
QAI, MCRO and CPI: Each 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 each 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 subject them to risk of loss not typically associated with domestic markets, such as currency fluctuations and political uncertainty; commodities markets, which subject them to greater volatility than investments in traditional securities, such as stocks and bonds; and fixed income securities, which subject them to credit risk – the possibility that the issuer of a security will be unable to make interest payments and/or repay the principal on its debt – and interest rate risk – changes in the value of a fixed-income security resulting from changes in interest rates. Loss may result from the imposition of exchange controls, confiscations and other government restrictions. Foreign risks will normally be greater when the Fund invests in emerging markets. 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.
MNA: 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. The Fund may invest its assets in a relatively small number of issuers, thus making an investment in the Fund potentially more risky than an investment in a diversified fund which is otherwise similar to the Fund. 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. The Fund is non-diversified and is susceptible to greater losses if a single portfolio investment declines than would a diversified fund.
GRES: 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 may fluctuate more widely than that of a fund which invests in a broad range of industries. The Fund also may be 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. The Fund is exposed to mid and small capitalization companies risk. Stock prices of mid and small capitalization companies generally are more volatile than those of larger companies and also are more vulnerable than those of large capitalization companies to adverse business and economic developments. Since the Fund may invest directly in foreign currencies or insecurities that trade in, and receive revenues in, foreign currencies, the Fund is subject to the risk that those currencies will decline in value relative to the U.S. that the U.S. dollar will decline in value relative to the currency being hedged.
ROOF: As the Fund’s investments are concentrated in the real estate sector, it is exposed to concentration risk, interest rate risk, leverage risk, property risk and management risk. The Fund is concentrated in small capitalization companies, whose stock prices generally are more volatile than those of larger companies. The Fund is non-diversified and is susceptible to greater losses if a single portfolio investment declines than would a diversified fund. The fund is not suitable for all investors. Investors in the Fund should be willing to accept a high degree of volatility in the price of the Fund's Shares and the possibility of significant losses. An investment in the Fund involves a substantial degree of risk and the Fund does not represent a complete investment program.
Investors are reminded that all investing involves risk, including possible loss of principal. Consider the Funds’ investment objectives, risks, charges and expenses carefully before investing. A prospectus with this and other information about the Funds may be obtained by visiting www.indexiq.com or by calling (888) 934-0777. Read the prospectus carefully before investing.
IndexIQ ETFs and mutual funds are distributed by ALPS Distributors, Inc. (ALPS), which is not affiliated with IndexIQ or New York Life. Adam Patti is a registered representative of ALPS.