Out Of That Hole?

Yesterday I included a picture of this truck still in the hole as wrote about market conditions possibly impeding, or even setting back, the development of the ETF industry, specifically available funds.

Then right on cue IndexUniverse reported that IndexIQ filed for another 15 ETFs. IndexIQ is the company that recently listed a hedge fund strategy ETF under ticker QAI.

Regardless of whether any of the IndexIQ funds garner any assets or do what they are supposed to do there is no doubt that the product line is innovative. The company must have the funding to make a go at this and obviously they will believe that any fund they do actually list will work.

They filed for;

• IQ CPI Inflation Tracker
• IQ Hedge Equal Weight Multi-Strategy Tracker ETF
• IQ Hedge Asset Weight Multi-Strategy Tracker ETF
• IQ Hedge Inverse Multi-Strategy Tracker ETF
• IQ Hedge Distressed Tracker ETF
  
• IQ Hedge Convertible Arbitrage Tracker ETF
• IQ Hedge Dedicated Short Bias Tracker ETF
• IQ Hedge Managed Futures Tracker ETF
• IQ Hedge Market Directional Tracker ETF
• IQ Hedge Absolute Return Tracker ETF
• IQ Hedge Relative Value Tracker ETF
• IQ ARB Merger Arbitrage ETF
• IQ ARB Global Natural Resources ETF
  
• IQ ARB Global Real Estate ETF
• IQ ARB Global Infrastructure ETF

The idea, according to IU, is that most of these would be funds of funds. I don't know what all of them mean, I don't know how many will actually list but assuming for a moment that all of them list I would not doubt that at least a couple of them turn out to be good portfolio-volatility dampeners.

Take that last one as an example; the ARB Infrastructure (click here and then scroll up a little). As I read the description they will build an index of infrastructure stocks to go long and then create short exposure "through a long position in inverse and/or ultra inverse ETFs." It seems they might capture a purer effect going long the same basket and then going short some combo of the infrastructure ETFs.

For example if the long basket was 25% utility-infrastructure then maybe 25% of the short could be the SPDR Infrastructure ETF (GII) which is 90% utility stocks. Hopefully the utility longs outperform GII and the arb would work. There are issues with selling short within an ETF and obviously they did not file the methodology they did because they think it is the wrong way to go.

Questions like this could be asked about all 15 funds and either they will work or they won't. I am a big fan of integrating a small slice of what they are setting out to do into a portfolio. While I will not be the first one into any of them, if they prove to be nice boring holds in a volatile market I could see switching to one of them--to be clear they would need to prove themselves to me for something close to a year before I would consider buying in.