Alternative ETFs’ Investment Strategy Guide



CSM investment strategy

A liquid alternative ETF, the ProShares Large Cap Core Plus ETF (CSM) tracks a long-short index of Credit Suisse 130/30 (CS13030). The index is designed to replicate an investment strategy that establishes either long or short positions in the stocks of some of the 500 largest US companies. This is based on market capitalization by applying a rules-based ranking and weighting methodology.

The index intends to provide a representation of a quantitatively constructed 130/30 US large-cap equity strategy. This result in the index that is having total long exposure of 130% and total short exposure of 30% at each monthly reconstitution date. Apple (AAPL), Microsoft (MSFT), and Johnson & Johnson (JNJ) are the major holdings of CSM, apart from index holdings of Credit Suisse.

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MNA investment strategy

The IQ Merger Arbitrage ETF (MNA) seeks to replicate the performance of the IQ Merger Arbitrage Index (IQMNAT). It widely uses the merger arbitrage strategy, a popular hedge fund strategy. The underlying index seeks to employ a systematic investment process designed to identify opportunities in companies whose equity securities trade in developed markets, including the US.

The underlying index seeks to capitalize on the spread between the current market price of the target company’s stock and the price received by the holder of that stock upon consummation of the buyout-related transaction. Also, the underlying index includes short exposure to the US and non-US equity markets. Healthcare stocks that represent almost 24% of MNA includes stocks such as Hospira (HSP), Cigna (CI), and Omnicare (OCR) in its top holdings.

QAI investment strategy

The IQ Hedge Multi-Strategy Tracker ETF (QAI) has been successfully tracking the IQ Hedge Multi-Strategy Index (IQHGMS). QAI seeks to replicate the risk-adjusted return characteristics of a particular hedge fund strategy as represented by publicly available hedge fund performance data.

The Vanguard Short-Term Bond ETF (BSV) and the Vanguard Total Bond Market ETF (BND) are the top holdings of QAI. The PowerShares Multi-Strategy Alternative Portfolio ETF (LALT), a similar alternative hedge fund, also uses the same investment strategy.

We will cover additional strategies in the coming parts of this series.


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