Back to top

Image: Bigstock

Hedge Fund Assets Hit Record in Q1: 5 ETFs to Tap

Read MoreHide Full Article

With an astounding rally in the global stock market on the dual tailwinds of rapid vaccinations and stimulus, hedge funds are also booming. This is especially true as global hedge fund assets climbed to a record $3.8 trillion in March, according to data from Hedge Fund Research (HFR).

Hedge funds added $201 billion in assets in the first quarter and gained an average of 6%. Cryptocurrency hedge funds led the way, surging 120%. Of the more traditional strategies, event-driven hedge funds — which bet on mergers and acquisitions, and other corporate events — made 8.2% while equity-focused funds made 7.1%, per the data. Assets in event-driven strategies rose by $85.4 billion while equity funds added $62 billion and interest rate sensitive, fixed income-based relative value arbitrage strategies saw an increase of $39 billion for the quarter (read: Should You Invest in Bitcoin, Coinbase or Blockchain ETFs?).

The Preqin All-Strategies Hedge Fund Benchmark was up 7.81% in the first quarter compared to a gain of 5.77% for the S&P 500 PR Index. This marks the best first quarter since 2006.

Barclays expects hedge funds to attract as much as $30 billion from investors this year, marking the industry’s first annual net inflow since 2017.

Given the solid Q1 performance and expectations for the trend to continue, the appeal of investments like hedge funds has raised. Although hedge funds use unique methods or offer exposure with lower risk strategies to produce some level of outperformance, these come with high cost and are generally illiquid. Additionally, hedge funds are accessible only to wealthy investors or institutions as these generally require minimum investments of $250,000 and have limits on cash withdrawals.

To overcome these drawbacks, investors can easily tap the growing space through the basket form. Hedge fund ETFs replicate investing styles and predictions of hedge funds, providing a solid and well-diversified portfolio, which seek to outperform the broader market. These have high levels of liquidity and are easily accessible like stocks. Further, these charge lower fees than what investors have to pay in the ‘true’ hedge fund space (see: all the Hedge Fund ETFs here).

As a result, we have highlighted some of the best performing funds that could make for an exciting choice in this corner of the ETF market. These utilize hedge fund strategies but differ in one way or the other. This suggests that investors should be able to find a good choice that matches their style and needs in this intriguing space:  

First Trust Dorsey Wright Dynamic Focus 5 ETF (FVC - Free Report) – Up 13.8%

This fund tracks the he Dorsey Wright Dynamic Focus Five Index, which is designed to provide targeted exposure to five First Trust sector and industry-based ETFs and an ultra-short duration ETF, the First Trust Enhanced Short Maturity ETF (FTSM - Free Report) . It has AUM of $232.8 million and charges 79 bps in annual fees. The product trades in an average daily volume of 16,000 shares.

Cambria Global Momentum ETF (GMOM - Free Report) – Up 13.7%

This ETF seeks to preserve and grow capital from investments in the U.S. and foreign equity, fixed income, commodity and currency markets, independent of market direction. The fund intends to target investing in the top 33% of a target universe of approximately 50 ETFs based on measures of trailing momentum and trend. It holds 18 stocks in its basket with AUM of $62.2 million and charges 94 bps in annual fees. Volume is paltry a sit exchanges only 4,000 shares a day on average (read: 10 Most Popular ETFs of This Year).

Global X Russell 2000 Covered Call ETF (RYLD - Free Report) – Up 13.1%

This fund follows a “covered call” or “buy-write” strategy, in which the fund buys exposure to the stocks in the Russell 2000 Index and “writes” or “sells” corresponding call options on the same index. This is easily done by tracking the Cboe Russell 2000 BuyWrite Index. RYLD has amassed $111.2 million in its asset base and charges 60 bps in annual fees. It trades in an average daily volume of 103,000 shares.

SPDR SSGA Multi-Asset Real Return ETF (RLY - Free Report) – Up 11.7%

This ETF seeks to achieve real return consisting of capital appreciation and current income. It offers exposure to inflation protected securities issued domestically and internationally, domestic and international real estate securities, commodities, and publicly traded companies in natural resources and/or commodity businesses. These companies may include agriculture, energy, and metals and mining companies. With AUM of $85.2 million, the fund charges 50 bps in annual fees and an average daily volume of 30,000 shares.

iM DBi Managed Futures Strategy ETF (DBMF - Free Report) – Up 8.7%

This product focuses on a strategy designed to seek to perform regardless of the direction of equity markets and offers exposure to some of the most liquid US-based futures contracts. It targets pre-fee returns of the largest CTA Hedge Funds by assets. The ETF has been able to manage worth $34.1 million and charges 85 bps in annual fees. It trades in an average daily volume of 7,000 shares.

Want key ETF info delivered straight to your inbox?

Zacks’ free Fund Newsletter will brief you on top news and analysis, as well as top-performing ETFs, each week. Get it free >>