Remember that new Hedge Fund ETF (QAI)?

Date: Tuesday, April 14, 2009
Author: Wallstnation.com

Now you can investing in a Hedge Fund ETF, but not have to front millions, just pick it up for $25 a share.  The IQ Hedge Multi-Strategy Tracker (ETF) (NYSE:QAI) is up a staggering 0.6% since its birth on March 25th.

The QAI doesn't invest in actual hedge funds America, it uses a wide variety of liquid ETFs already in the market, just like day traders have been doing since the dawn of time.

The overall success of the IQ Hedge Multi-Strategy Tracker (ETF) (NYSE:QAI) is likely going to be dependent upon two issues: its portfolio mix, which ultimately leads to its performance and its liquidity and trading volume.

From the ETFGuide.com:

Hedge fund strategies are very complex and few succeed without a strong track record. Sal Bruno, the Chief Investment Officer, and Greg Sivin, VP of Product Development. both joined IndexIQ after a year managing the DWS Growth & Income Fund.  From their own annual report discussion for the 12-month period ended September 30, 2006, they wrote  "DWS Growth & Income Fund Class A shares produced a total return of 8.50% for the 12 months ended September 30, 2006. The fund's return was below that of its benchmark, the S&P 500 Index, which had a return of 10.79%."  How can they succeed with a hedge fund like ETF when they can barely keep up with the S&P 500?

But one of the most worrisome aspects of the IndexIQ fund is its ProShares Ultra Short Euro (NYSEArca: EUO) component.  The underlying ETF had assets, as of QAI's launch on March 25th, of $43 million.  Yet according to the prospectus,"The Underlying Index Components that are eligible for inclusion in the Underlying Index include domestic ETFs and ETVs that have at least $50 million in assets under management."  

In this climate of liquidity fear, it is odd that IndexIQ seems to have broken its own liquidity rules and invested in EUO. 

Before IndexIQ's staff comments on the hedge fund industry's transparency, they may be well advised to review the accuracy of their own disclosures.