Investors have been through a lot of difficulties this year. The CBOE Volatility Index went up in the first quarter. In Q2, stocks were all over the place because the Federal Reserve raised rates again. They even said more tightening was on the way.
When things are like this, it’s hard to tell where stocks will go. Even more risky are investments in the middle, like a large-cap stock index fund. Several exchange-traded funds (ETFs) let investors play volatility. They do this, instead of relying on a bull market’s rising tide.
In this list, we have the best hedge funds ETF. These hedge funds ETFs ensure you get most of the benefits you get from hedge funds, without worrying a lot. Let’s get started.
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15 Best Hedge Funds ETF
As its ticker and name suggest, the Hedge Replication ETF uses strategies similar to those of a hedge fund. It does this by investing in a mix of debt, stocks, and currencies in both developed and emerging markets. This fund isn’t meant to make much money by going all-in on what’s hot. It is one of the best hedge fund ETFs.
Instead, investing in many things means finding a balance between risk and reward. The fund did about the same in 2018 as it did in 2017. However, that may not be a red flag for investors who want to limit downside risk in a tough market.
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#2. First Trust Long/Short Equity ETF (FTLS)
Playing both sides of the market is another way for hedge funds to make money. This is instead of just buying stocks and hoping they go up. The FTLS fund uses a ” long-short ” strategy to bet against companies it thinks are weak. It also bets on companies it thinks will do well.
For example, this fund is currently betting on the success of tech giant Facebook (FB). It is also betting against consumer staples company Pepsico (PEP). If the markets go up slowly and steadily, FTLS will leave money on the table.
But if things go wrong, these targeted bets will not only keep your portfolio safe. They may also make you some money. It is one of the best hedge fund ETFs.
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#3. IQ Hedge Multi-Strategy Tracker ETF (QAI)
The QAI fund is one of the best hedge funds ETF. It is another long-short exchange-traded fund (ETF), but it does not only invest in stocks. About 20% of the portfolio has U.S. Treasurys. The rest has small amounts of emerging market debt and corporate bonds.
Since QAI is a “fund of funds” that holds other ETFs, like sector funds and bond funds, the full list of holdings can be a bit overwhelming.
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This fund is good to ensure that your investments don’t move in the same way as the market. You can protect yourself from risks to the downside by putting some of your money in this inverse fund. This moves almost exactly the opposite of the S&P 500 index.
Putting all your money and betting against the market, which goes up in the long run, is risky. But SPD is good for short-term protection. It is one of the best hedge funds ETF.
This is another popular one on our list. It is also one of the best hedge fund ETFs. HDGE gives you a better way to bet against stocks it thinks are the worst. At the moment, this includes the shoe and clothing company Skechers USA (SKX). It also includes the dental products company Alien Technology (ALIN). They all have a volatile stock price (ALGN).
This exchange-traded fund chooses which stocks to sell short. This way, it doesn’t just go up when the market goes down. Even though the S&P 500 is slightly up for the year, HDGE is flat. This means it can do better than rigid inverse funds in a complex environment when things are uncertain.
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#6. Cambria Tail Risk ETF (TAIL)
This tail-risk fund has a different strategy. It tries to protect investors from a big move in the market by betting on U.S. Treasuries. It also uses options against the S&P 500 in a unique way.
Extraordinary market moves can ruin portfolios not only because they are dramatic. This is also because they are not expected. During the financial crisis, when investments that seemed safe turned out to be anything. This has caused many investors to lose everything.
This year, TAIL is down about 5%, but investors should see that as more of a cost of insurance than a sign of underperformance. It is one of the best hedge funds ETF
SPLV is a unique way to get insurance instead of trying to make money. It puts more weight on stable stocks and less on volatile stocks. In the fund’s top sector are companies like Duke Energy Corp. (DUK). It is one of the best hedge funds ETF
This group of stocks makes up about 25% of the portfolio right now. Most electricity providers have geographic monopolies and built-in demand. These stocks are about as stable as investments can get. There isn’t much growth here, but some investors may be very interested in a focus on less volatility right now.
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#8. RPAR – RPAR Risk Parity ETF.
With more than $1.5 billion in assets, RPAR from Toroso Investments is by far the most popular fund. It’s the famous All Weather Portfolio in a single ETF, so it’s a good way to invest. For the convenience of not having to do anything, RPAR charges a fee of 0.51 percent. This isn’t cheap, but it’s a lot cheaper than a real hedge fund.
The fund tries to put 35% of its money into TIPS, 25% in global stocks, 25% in commodities, and 15% in Treasury bonds. It rebalances every three months. The treasuries leverage and from what we know, the fund has a total nominal exposure of 120%. It is one of the best hedge fund ETFs.
#9. QAI – IQ Hedge Multi-Strategy Tracker ETF.
QAI from New York Life is a fund-of-funds that invests in multiple hedge fund return sub-indexes. This gives investors access to a wide range of hedge fund trading strategies. This includes global macro, long/short, fixed income arbitrage, and Emerging Markets.
By doing this, QAI makes it so investors don’t have to choose a specific strategy. This is probably why it’s one of the most popular liquid alternative ETFs with more than $800 million in assets. The fund has 54 investments and costs 0.79 percent of its total value.
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#10. MNA – IQ Merger Arbitrage ETF
MNA is also from New York Life, with almost $700 million in assets under management (AUM). It is only slightly less popular than QAI. This uses a ” merger arbitrage strategy,” which buys companies named as acquisition or takeover targets. It is one of the best hedge funds ETF
Long exposure to these takeover targets by MNA has balanced through short exposure to broad global equity indexes. This gives concentration and low correlation to broad equities. The arbitrage opportunity is the difference between the current price of the company they bought and the price paid for the company.
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#11. PXE Invesco Dynamic Energy Exploration & Production ETF
PXE uses a complicated tiered weighting method to determine who wins in oil and gas exploration and production. The result is a more conservative fund with a bias toward small-cap stocks. Its underlying index, the Intellidex Index, ranks companies based on factors like-
- Price momentum
- Earnings momentum
- Quality
- Management action, and
- Value.
The universe of choices for PXE is bigger than others, so the fund can invest in industries. They rebalance the fund and put it back together every three months. It is one of the best hedge funds ETF.
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#12. FCG First Trust Natural Gas ETF
FCG is the first of its kind, giving investors direct access to the US natural gas market. The fund does a good enough job of capturing the concentrated space, which is good news. FCG chooses companies involved in natural gas.
MLPs make up 15% of its portfolio, while the other 85% is from stocks. Then, it gives each bucket a linear cap-weighted rank. Both selection and weighting are mostly based on the average daily trading volume and market cap. The result is a portfolio that looks almost exactly like the market.
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#13. GSP iPath S&P GSCI Total Return Index ETN
GSP is a simple way to invest in a wide range of commodities through an ETN. The fund’s exposure to its target commodities comes from front-month futures contracts. This makes it very sensitive to the forces of contango. It is one of the best hedge fund ETFs.
Eligible contracts must have enough liquidity, They must also be on trading platforms in countries part of the Organization for Economic Cooperation and Development (OECD). That GSP is in an ETN means it has the backing credit of Barclays Bank PLC.
#14. OIH VanEck Oil Services ETF
Late in 2011, Van Eck bought the old “Oil HOLDRS” and changed it into a “living, breathing” ETF. He did this with new management and a simple plan to buy the 25 largest and most liquid US-listed oil services companies. This changed OIH.
Even though some of OIH’s investments focus on the rest of the world, it has a bigger stake in the US. It even makes its sector bets. Overall, the OIH is very concentrated and strongly prefers US firms. Every six months, the index rebalances.
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#15. UNG United States Natural Gas Fund LP
UNG only invests in futures contracts for the next month. This means that the fund will be very sensitive to changes in spot prices. However, its price may be significantly higher or lower than the spot. It is one of the best hedge fund ETFs.
Summary
As a whole, hedge funds haven’t done well over the long term. It’s still hard to resist finding out what the “smart money” has been doing.
Also, give them credit where it’s due. Even though hedge funds might not be making money in 2022, at least they are doing better than the market.
Hedging strategies limit gains when stocks go up. This helps explain why the industry did not do well for years during the bull market. On the other hand, strategies for hedging limit losses when everything is going down. And investors have seen a lot of red on their screens this year already.
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Frequently Asked Questions
Hedge Funds ETFs have $6.02B in assets under management and 45 ETFs that trade on U.S. markets. 1.02% is the average expense ratio.
ETFs for people who think it’s time to protect themselves. They are-
ProShares Hedge Replication ETF (ticker: HDG)
First Trust Long/Short Equity ETF (FTLS)
Direxion S&P 500 Bear Shares (SPDN)
AdvisorShares Active Bear ETF (HDGE)
Cambria Tail Risk ETF (TAIL), and
PowerShares S&P 500 Low Volatility Portfolio (SPLV)
The Bridgewater Group. With about $150 billion in capital, Bridgewater is the biggest hedge fund in the world. Since it started in 1975, Bridgewater has given its investors $52.2 billion in profits.
The ETFs you should buy are:
Vanguard FTSE Emerging Markets Index Fund ETF Shares (NYSE: VWO)
Procter & Gamble (NYSE: PG)
iShares Core MSCI Emerging Markets ETF is an exchange-traded fund (NYSE: IEMG)
SPDR® S&P 500; iShares MSCI Emerging Markets ETF (NYSE: EEM) (NYSE: SPY)
Alibaba is a tech giant based in China (NYSE: BABA)
Johnson and Johnson (NYSE: JNJ)
It’s important to know that Vanguard is hesitant to call this a “hedge fund” because of what that word means. This is a regulated retail mutual fund, and the operating costs are only 0.25% a year.
Yes. There is VOO 13F Hedge Fund and Asset Management Owners.
Cash is often the best choice when the S&P 500 is already going down or when the Fed is raising interest rates. After a crash, the best place to be is usually in long-term Treasuries, especially if it seems likely that the Fed will lower interest rates.
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References
- thestreet.com– Hedge fund ETF
- finance.yahoo.com– Hedge funds winning 2022
- investopedia.com– world’s top 10 hedge fund firms
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