AlphaClone Alternative Alpha ETF (ALFA) debuts offering hedge-fund-like exposure

Jun 8th, 2012 | By | Category: Alternatives / Multi-Asset

The AlphaClone Alternative Alpha ETF (ALFA) began trading last week, becoming the first ETF – just pipping the Global X Top Guru Holdings Index ETF (GURU) – to invest specifically in disclosed equity positions held by established hedge fund managers.

AlphaClone Alternative Alpha ETF (ALFA) debuts offering hedge-fund-like exposure

The NYSE-listed AlphaClone Alternative Alpha ETF (ALFA) 'clones' the holdings of established hedge funds based on publicly disclosed SEC Form 13F data.

The new ETF is based on the passive, risk-managed AlphaClone Hedge Fund Long/Short Index and seeks to capture alpha from select hedge fund managers’ long positions while protecting against protracted market downturns through a dynamic hedge mechanism.

Unlike traditional hedge funds, which typically come with onerous investor restrictions, the ETF structure enables ALFA to provide investors access to the alpha-generating potential of established hedge fund managers within a transparent vehicle that is available for trade daily on the NYSE.

“AlphaClone offers our separate account clients strategies that expertly combine long hedge fund equity positions with disciplined downside protection,” says Mazin Jadallah, founder and CEO of AlphaClone. “With the introduction of ALFA, investors around the world can now access our proven investment approach in a transparent and easy to access vehicle that can help navigate today’s challenging market environment.”

Different from hedge fund beta factor replication, the AlphaClone index directly selects its long positions from public disclosures, most notably the Form 13F filed with SEC, using AlphaClone’s Clone Score ranking.  This proprietary methodology measures the efficacy of following managers based on their disclosures over a complete market cycle (since 2000).

Most of the hedge funds tracked by the index are fundamentals driven and value oriented. The index tends to avoid funds that are owned/operated by prime brokers, those with large ETF businesses, and those with very high turnover.

As of the 31 May 2012 rebalance, the top ten holdings in the index were Apple, Express Scripts, Simon Property Group, Intel, PepsiCo, Liberty Media, Google, Delphi Automotive, Sun Healthcare Group and DFC Global.

According to Mazin Jadallah, based on the latest public disclosures from institutional investors and hedge funds tracked by the AlphaClone Hedge Fund Long/Short Index, hedge funds continue to overweight financials, business services, construction and computer/technology companies.

He added that “managers are avoiding or have reduced relative exposure to the energy, retail, consumer staples and utilities sectors. Energy stocks have received the biggest sell signal in the AlphaClone index with a rebalance from 2 percentage points underweight the S&P 500 in Q4 2011 to over 5 percentage points underweight in Q1 2012. The bearish stance on energy clearly indicates concern over the effects of a global economic slowdown on the demand for oil and energy products.”

The AlphaClone Alternative Alpha ETF is listed on the NYSE Arca and comes with a TER of 0.95%. The fund is the second ETF to begin trading through the private-label ETF platform, styled “ETF-In-A-Box solution”, offered by Oklahoma-based Exchange Traded Concepts.

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