IndexIQ Launches First No-Load Open-End Mutual Fund Designed to Replicate Hedge Fund Performance

Date: Wednesday, July 2, 2008
Author: Businesswire.com

NEW YORK--(BUSINESS WIRE)--The first no-load open-end mutual fund based on hedge fund replication designed to give investors access to hedge fund-like performance characteristics was introduced today by IndexIQ (www.indexiq.com). The IQ Alpha Hedge Strategy Fund uses a proprietary investment process to synthesize the risk and return profiles of a broad range of hedge fund investing strategies, striving to deliver hedge fund-like performance in a low cost, transparent, and highly liquid investment vehicle.

“Interest in hedge funds has grown enormously over the past decade. However, the vast majority of investors have not had access to this important asset class,” said Adam Patti, chief executive officer at IndexIQ. “High net worth requirements and regulatory restrictions, among other factors, have essentially limited participation to wealthy individuals and institutions. The IQ Alpha Hedge Strategy Fund opens up hedge fund-style investing by providing access to hedge fund performance in an open-end mutual fund.”

Creating a highly liquid, low cost portfolio

The IQ Alpha Hedge Strategy Fund is based on the firm’s belief that “alternative beta” – returns due to varying exposure to different asset classes – is the primary driver of aggregate long-term hedge fund portfolio performance*. That beta is captured initially in the IQ Alpha Hedge Index, which uses proprietary algorithms to closely replicate the returns of six major hedge fund strategies: Equity Long/Short; Global Macro; Emerging Markets; Fixed Income Arbitrage; Equity Market Neutral; and Event Driven. Alpha is then sought by optimizing the relative index weights among these six hedge fund strategies. The objective of the IQ Alpha Hedge Index is to provide superior returns with lower volatility relative to the Standard & Poor’s 500, and with a correlation similar to that between hedge funds generally and the S&P. The IQ Alpha Hedge Strategy Fund attempts to generate total return that, before fees and expenses, corresponds to that of the IQ Alpha Hedge Index.

In constructing the fund, IndexIQ uses ETFs and a variety of other highly liquid financial instruments to provide exposure to the components of the index in approximately the same weighting. The fund employs leverage totaling 25 percent of the portfolio to magnify returns. In both the Index and the fund, the characteristics of the underlying strategies are replicated without exposing shareholders to the idiosyncratic manager risk of hedge fund investing.

“There is a significant body of academic research that supports the ability of hedge fund replication strategies to capture the characteristics of broad-based hedge fund returns, without the associated costs and risks of investing directly in the underlying strategies,” said Professor Robert F. Whitelaw, chairman of the Finance Department at New York University’s Stern School of Business and Chief Investment Strategist at IndexIQ. “The IQ Alpha Hedge Strategy Fund employs the latest research and modeling techniques to provide access to these strategies in a low-cost, open-end investment vehicle.”

Investors are reminded that mutual fund investing involves risk, including possible loss of principal. The Fund and its index are new, with limited historical performance data. There is no guarantee that the Fund will meet its objectives. The Fund should be considered a high-risk investment, and it may not be suitable for all investors due to its use of leverage, short-selling, and derivatives, all of which may amplify the volatility of the Fund's share price. An investor in the Fund will bear the operating expenses of the underlying ETFs and related securities in which the Fund invests, in addition to the operating expenses of the Fund.

About IndexIQ

Based in Rye Brook, New York, IndexIQ is the leading developer of Rules-Based Alpha^TM investment products designed to harness the benefits of traditional index investing with the alpha potential sought by the best active managers. The Rules-Based Alpha^TM philosophy democratizes investment management by making institutional class investment strategies available to all investors, at low cost. IndexIQ strategies span the full range of asset classes and product categories and are marketed both through the company’s asset management division and through select partnerships with leading global financial institutions. Additional information about the company and its products can be found at www.indexiq.com.

Consider the Fund's investment objectives, risks, charges and expenses carefully before investing. A prospectus with this and other information about the Fund may be obtained by visiting www.indexiq.com or by calling 877 IQ INDEX. Read the prospectus carefully before investing.

The Fund is distributed by PFPC Distributors, Inc., which is not affiliated with IndexIQ or the Fund's investment advisor.

* Alpha is a measure of a portfolio’s actual excess returns and expected performance, given its level of risk (as measured by Beta); Beta reflects the sensitivity of a portfolio’s return to fluctuations in the market (in this case, as measured by the S&P 500 Index).