Way back in the fall of 2008 we had two funds that were to going to launch as ETFs. One was an endowment style global tactical ETF (ticker symbol IVY) and the other was a global listed hedge fund ETN. We were partnering with Claymore (now Guggenheim) as the sub-advisor, as well as one of the world’s most famous financial brands that was moving into the ETF space.
Fast forward to the fall of ’08 and both filings got pulled due to the market gyrations. This of course was both good and bad for my firm. It was good since we would have recieved a pretty tiny index fee for designing the methodology, but it was bad since our strategies would have held up nicely since 2008. (The story is actually much longer and interesting but not really something I want to publish on the blog. So if you grab me over a beer sometime I’ll tell you the details.)
The global listed hedge fund ETN was going to invest in the listed hedge funds in Europe, and really the only structure that can do that without screwing the end investor due to PFIC taxes is the ETN. The listed hedge funds trade like closed-end funds do here with discounts and premiums to NAV and we had a strategy to bias the index to the funds trading at the biggest discounts. I haven’t seen any content on listed hedge funds in the US (other than a chapter on them in our book), but the ETN structure should have died alongside Lehman, although oddly it is still around today. I think investing in the foreign listed funds was really interesting five or so years ago, but with more and more active ETFs and alternative funds listing publicly, and the huge tax benefit to running active strategies in an ETF structure, they slowly became less and less interesting.
Anyways, it looks like Global X, which has been pretty creative and aggressive in launching funds, is going to do a global listed hedge fund ETF. I doubt they can get around the PFIC rules but will update this post if I chat with the folks there anytime soon and they provide more clarity. I’m pretty sure this is what killed the foreign listed private equity ETF a few years ago after I wrote about it a bunch on the blog.
As far as the three 13F based ETFs, they are interesting ideas with a major caveat – if they are done correctly. I am often doubtful many people know how to analyze 13Fs (for example many people think the top holdings are the best to follow, which they are not). I assume they are launching the first fund as a 13F tracker on the entire hedge fund space as a fund for the institutions to short (which I think is a great idea), as tracking the entire hedge space doesn’t make any sense otherwise. But as with anything I reserve my judgement until I get to see the methodology of the underlying strategies. (Note: AlphaClone also has an ETF in registration, and as a disclosure I have a small passive equity stake in the company.)
As a follow up, every single one of my ETF ideas from my post a few years ago is now in registration or launched. Perhaps it is time for a new list?
What would you like to see?