Investor's Business Daily, September 17th, 2007
IndexIQ is still waiting for approval for its January filings for ETFs based on "intangible" qualities such as innovation, power and productivity. In the meantime, the developer of so-called "next-generation" equity indexes on Monday launched an asset management business: IndexIQ Advisors.
It's offering four hedge fund strategies and three ETF strategies: ETFIQ Commodity Rotation, ETFIQ Country Rotation All World Ex-U.S. and ETFIQ Country Rotation Developed Markets Ex-U.S.
Agustin "Gus" Fleites, a veteran of ProShares and State Street Global Investors, is IndexIQ Advisors' newly named president.
IBD: What quantitative methods or formulas will be used to determine which commodities to buy in the commodity rotation portfolio?
Fleites: We use primarily a price momentum strategy to select the commodity ETFs because their prices tend to follow a trending pattern rather than oscillating pattern for extended periods of time.
There are certainly short-term fluctuations around the trend, but the trading strategy that we use is explicitly designed to ride out the short-term disruptions and capture the benefits of the longer-term trends. When there is evidence to suggest that the trend has broken, our methodology dictates that we rotate out of certain commodities and into other commodities that show evidence of an upward price trend forming.
IBD: Which commodities does it hold at the moment?
Fleites: The portfolio as of August 2007 is overweighting base metals, silver and agriculture, and also holds positions in gold, precious metals, oil and energy, all held through ETFs.
IBD: How are areas of investment selected for the country rotation All-World Ex-U.S. portfolio?
Fleites: Both country rotation products use the same multifactor model to select the countries on a monthly basis. The factors used encompass momentum, valuation and macroeconomic elements.
The use of valuation and momentum factors in conjunction with one another is particularly important because it allows us to identify countries that are attractive in terms of where assets are flowing, but only to the point where the underlying fundamentals of the country make sense.
If the market is too expensive, then even if flows are moving into that country, we will exclude it on the basis that we don't want to suffer significant setbacks when the market falls.
IBD: Which ETFs does that currently hold and why?
Fleites: The all-world portfolio as of August 2007 consists of larger weights in Austria, Germany, Netherlands, South Korea, Italy, Brazil and Mexico with smaller positions in France and Malaysia.
We don't have outlooks on any countries per se because we use a completely rules-based approach. Thus, we don't introduce any subjectivity into the process.
IBD: Why do you have two separate international strategies, in which ETFIQ Country Rotation Developed Markets Ex-U.S. excludes emerging markets?
Fleites: We have two different strategies primarily due to client interest. The flagship product is the all world because it is the most comprehensive, including both developed markets and emerging markets.
Given how well emerging markets have performed, this is an attractive way for investors to get exposure to this increasingly important market segment in an optimized and efficient way.
This product also has superior performance relative to the developed markets product. However, some clients have found the developed markets product to be more attractive either because they already have sufficient exposure to emerging markets through other means or perhaps because of the perception that emerging markets exposure makes the all-world product more risky.
However, although the standard deviation of returns has been higher for the all-world product vs. the developed product (which some would suggest indicates greater risk), the worst performance period suffered in the developed-markets product was larger than that for the all-world product.
(It is important to note that the maximum loss for both the all-world and the developed-market products was less than their respective benchmarks.)
IBD: What's in that portfolio currently?
Fleites: The developed portfolio as of August 2007 consists of larger positions in Germany, the Netherlands, Italy, Spain, France and Sweden with smaller positions in the United Kingdom, Austria and Singapore.
