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The fund invests at least 80% of its net assets, plus the amount of any borrowings for investment purposes, in the investments included in its underlying index. The underlying index seeks to employ a systematic investment process designed to identify opportunities in companies whose equity securities trade in developed markets, including the U.S., and which are involved in announced mergers, acquisitions and other buyout-related transactions. The fund is non-diversified.

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In a corporate cage match, two of the globe&#8217;s most dominant oil titans are fighting it out for a share of one of the world&#8217;s most coveted oil finds: Guyana. But while Chevron Corp (NYSE:<a class="ticker" href="https://www.benzinga.com/stock/CVX#NYSE">CVX</a>) and Exxon Mobil Corp (NYSE:<a class="ticker" href="https://www.benzinga.com/stock/XOM#NYSE">XOM</a>) are in the midst of arbitration, ETF investors may need to hold on tight. This courtroom battle could rock some of the <a href="https://www.benzinga.com/etfs">largest energy ETFs available</a>.
<h1 class="wp-block-heading">The Stakes: Oil, Ego — And An 11 Billion Barrel Bonanza</h1>
Behind the fight is Hess Corp&#8217;s (NYSE:<a class="ticker" href="https://www.benzinga.com/stock/HES#NYSE">HES</a>) 30% interest in a huge Guyanese oil project, which has roughly 11 billion barrels in projected reserves. Chevron said in 2023 it agreed to buy Hess for $53 billion, a transaction that would put it at the front of the Guyana boom. 
But Exxon, which already <a href="https://www.benzinga.com/markets/equities/24/06/39479711/exxon-mobil-rakes-in-billions-from-guyana-oil-deal-net-margin-tops-chip-giant-report">co-leads the Guyana project</a>, says it has pre-emptive rights to the stake. Arbitration gets underway in London this week, and sometime in late summer, a panel will <a href="https://www.benzinga.com/topic/oil">make a decision</a>.
<h1 class="wp-block-heading">ETF Fallout: Who&#8217;s Exposed To What?</h1>
The heavy hitters such as Energy Select Sector SPDR Fund (NYSE:<a class="ticker" href="https://www.benzinga.com/stock/XLE#NYSE">XLE</a>), iShares U.S. Energy ETF (NYSE:<a class="ticker" href="https://www.benzinga.com/stock/IYE#NYSE">IYE</a>) and Vanguard Energy Index Fund ETF (NYSE:<a class="ticker" href="https://www.benzinga.com/stock/VDE#NYSE">VDE</a>) are carrying heavy loads of both Exxon and Chevron, between 35% and 40% combined weighting in each fund.
If either Exxon or Chevron prevails, one can anticipate a pop for these ETFs as the Guyana deal would mean long-term growth assets for the prevailing company.
Hess Corp. is smaller but essential in this saga. ETFs such as iShares U.S. Oil &amp; Gas Exploration &amp; Production ETF (BATS:<a class="ticker" href="https://www.benzinga.com/stock/IEO#BATS">IEO</a>) carry meaningful exposure to Hess, and therefore a front-row seat to either a lucrative M&amp;A payday or a disappointing fizz.
Additionally, merger arbitrage ETFs, such as NYLI Merger Arbitrage ETF (NYSE:<a class="ticker" href="https://www.benzinga.com/stock/MNA#NYSE">MNA</a>) and ProShares Merger ETF (BATS:<a class="ticker" href="https://www.benzinga.com/stock/MRGR#BATS">MRGR</a>), are likely to be betting on the Hess factor already. If the transaction gets delayed or blocked further, one can expect some readjustment.
<h1 class="wp-block-heading">Beyond the Big Oil Bets</h1>
As Chevron cuts jobs and balances new resources in Kazakhstan and the Gulf of Mexico, it also deals with <a href="https://www.benzinga.com/markets/25/02/44000386/trump-shuts-down-chevrons-venezuela-oil-permit-tightening-pressure-on-maduro-regime-crude-oil-prices-rise-on-supply-concerns">uncertainty in Venezuela</a>, where an operating license may be withdrawn. Exxon is increasing <a href="https://corporate.exxonmobil.com/locations/guyana/guyana-project-overview">production </a>in Guyana to 1.3 million barrels/day by 2027, greater than North Dakota&#8217;s Bakken Shale.
<h1 class="wp-block-heading">One Wrong Move = ETF Domino Effect</h1>
With activist investors watching Exxon and Chevron still under pressure to prove long-term growth, the arbitration&#8217;s outcome could drive major portfolio re-weightings, flows into specific funds or a rise in thematic oil and gas ETFs.
In short, this isn't just a battle over barrels, it's about which ETFs end up doing well and which might need a Band-Aid.
<h1 class="wp-block-heading">Final Thought</h1>
This Guyana brawl might be happening in a London arbitration chamber, but its aftershocks will be felt through world markets and ETF tickers. For investors, it&#8217;s time to look beyond the barrel and begin peering at the ticker tape.
Read Next: 
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<li><a href="https://www.benzinga.com/25/05/45647794/why-kre-is-falling-behind-xlf-and-raising-flashbacks-of-the-svb-collapse-etf-market-senses-bank-trouble">KRE Falls Behind XLF, Sparks SVB Collapse Flashbacks: Are ETFs Sensing Bank Trouble?</a></li>
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Global dealmaking fell to its lowest level since the coronavirus pandemic as surging inflation, stricter regulation, and the war in Ukraine led to a slowdown in what had been a record period of mergers and acquisitions,&nbsp;<a class="editor-rtfLink" href="https://www.ft.com/content/47c9ec9f-e86e-427e-8a50-34e4a6757852" style="color:#4a6ee0; background:transparent; margin-top:0pt; margin-bottom:0pt" target="_blank">reported The Financial Times</a>.
According to Refinitiv data, just over $1 trillion worth of deals were struck in the first quarter of 2022, 23% lower than the same period last year, with all continents facing a decline in M&amp;A activity.
On the other hand, Private equity groups enjoyed their strongest ever start to the year, deploying vast cash piles accumulated during the pandemic. Buyout groups backed $288 billion worth of deals, a 17% rise compared with the first three months of 2021.
&ldquo;The uncertainty from geopolitical tensions, lower GDP growth, inflation, and the commodity cycle would typically dampen M&amp;A activity. But the ambitions that we see among CEOs and boards to grow their businesses remain quite high,&rdquo; stated Avinash Mehrotra, global head of activism and shareholder advisory at Goldman Sachs.
As per the Financial Times, the value of canceled deals peaked in 1Q21 at $215 billion, the highest level since 2018. About three-quarters of all abandoned deals involved a European target, highlighting the stricter regulatory stance taken by the UK and European competition authorities.
The rate of abandoned deals involving special purpose acquisition companies also increased as the SPAC merger frenzy of the past two years gave way to heightened regulatory scrutiny and poor performance.
Related:&nbsp;<a class="editor-rtfLink" href="https://www.benzinga.com/government/22/03/26393329/sec-proposes-for-greater-disclosures-from-blank-cheque-company-sponsors-ft" style="color:#4a6ee0; background:transparent; margin-top:0pt; margin-bottom:0pt" target="_blank">SEC Proposes For Greater Disclosures From Blank-Cheque Company Sponsors</a>
SPAC mergers accounted for 3% of total global dealmaking, compared with 17% in the same period in 2021. The SPAC initial public offerings fell 78% this year compared with 1Q21, while just 38 mergers have been completed.

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Global Dealmaking Drops To Lowest Level Since Onset Of Pandemic: FT

The IQ Merger Arbitrage ETF (NYSE: <a class="ticker" href="https://www.benzinga.com/stock/mna#NYSE">MNA</a>) &mdash;&nbsp;one of the first exchange traded funds to make the merger arbitrage strategy long used by professional traders accessible to a broader swath of investors &mdash; recently topped $1 billion in assets under management.
<h3>What Happened</h3>
Merger arbitrage is an event-driven strategy in which traders, also known as arbitrageurs in this case, speculate on when a deal will close or if it will be finalized at all. The strategy involves buying and selling shares of two companies involved in a proposed merger.
A typical strategy would be to short shares of the target company if the arbitrageur sees reasons why the deal could be delayed or ultimately fail.
MNA, which debuted in November 2009, makes the merger arbitrage strategy accessible to everyday investors. The fund tracks the IQ Merger Arbitrage Index, meaning MNA is a passive, index-based strategy.
<h3>Why It&#39;s Important</h3>
In the ETF space, MNA is considered an alternative fund. Alternative assets are usually embraced by investors looking for assets that&nbsp;historically&nbsp;are not highly correlated to stocks and bonds. MNA recently won the 2019 Mutual Fund and ETF Industry Award for the &ldquo;Best Alternative ETF of the Year.&rdquo;
MNA &ldquo;provides diversification benefits and low correlation to other asset classes, which may improve a portfolio&#39;s risk-return profile,&rdquo; according to the issuer.
At the end of the first quarter, MNA held 35 stocks, about two-thirds of which hailed from the <a href="http://www.nylinvestments.com/polos/FS_MNA5.pdf">technology and health care sectors</a>. Top 10 holdings in the ETF include Red Hat Inc. (NYSE: <a class="ticker" href="https://www.benzinga.com/stock/rht#NYSE">RHT</a>), First Data Corp. (NYSE: <a class="ticker" href="https://www.benzinga.com/stock/fdc#NYSE">FDC</a>), Celgene Corp. (NASDAQ: <a class="ticker" href="https://www.benzinga.com/stock/celg#NASDAQ">CELG</a>) and SunTrust Banks, Inc. (NYSE: <a class="ticker" href="https://www.benzinga.com/stock/sti#NYSE">STI</a>).
MNA can also provide a buffer against volatility. At the end of the first quarter, the ETF&#39;s underlying index had a standard deviation of just 3.27 percent, well below the comparable metrics on broad equity benchmarks.
<h3>What&#39;s Next</h3>
MNA and the IQ Hedge Multi-Strategy Tracker ETF (NYSE: <a class="ticker" href="https://www.benzinga.com/stock/qai#NYSE">QAI</a>) are IQ&#39;s two ETFs with at least $1 billion in assets under management. Those are the only two liquid alternatives ETFs to have hit the $1-billion milestone.
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Merger Arbitrage ETF Tops $1 Billion in Assets

There are about 15,000 hedge funds out there, and both their fees and returns are very varied. But, what determines those factors?
One of the most important elements in a hedge fund&rsquo;s success is the manager. However, most people know only a few names in the space: Warren Buffett, Jim Simons, George Soros, Steve Cohen, David Einhorn, Bill Ackman, Ray Dalio, Carl Icahn, etc. And, needless to say, the fees that these guys charge are off the charts.
Now, taking into account that smaller hedge funds are expected to <a href="https://www.benzinga.com/personal-finance/financial-advisors/17/02/9000294/expert-why-smaller-hedge-funds-will-continue-to-ou#/null">continue to outperform larger ones</a>, how do these firms select their managers? How do other people get into the game? Is there space for smaller fish in the bowl?
In order to shed some light on the issue, Benzinga reached out to <a href="https://www.benzinga.com/topic/don-steinbrugge">Don Steinbrugge</a>, one of the best-known experts in the hedge fund industry. With over three decades of experience in the space, Steinbrugge has been running Agecroft Partners, a global, award-winning hedge fund consulting and marketing firm for almost 10 years now. Prior to that, he worked at Andor Capital and Merrill Lynch Investment Managers &mdash; now part of BlackRock, Inc. (NYSE: <a class="ticker" href="/stock/blk#NYSE">BLK</a>).
<h3>The Funnel Approach</h3>
&ldquo;When you look at the process that professional hedge funds use to select their managers, they are using a funnel approach,&rdquo; the expert commenced. &ldquo;Most professional hedge fund investors are getting contacted by thousands of managers a year, they are meeting with 100 to 500 a year, they are doing follow-up meetings with 50, and they are hiring two. So, it&#39;s one of the most competitive industries there is.&rdquo;
&ldquo;As a result of that, most of the money is going to a very small number of managers &ndash; the very largest managers and the smaller managers that not only have a great product but are also very good at articulating what their differential advantage is,&rdquo; he added.
&ldquo;One of the keys to hedge funds is, you have to be able to explain to people what inefficiency in the market you are going after, and what your differential advantage is to capture that inefficiency,&rdquo; Steinbrugge concluded. &ldquo;If people don&#39;t understand that, they won&#39;t invest; and, most hedge fund managers are very bad at explaining what they do.&rdquo;
Liked this article? Now check out Steinbrugge&rsquo;s explanation on how <a href="https://www.benzinga.com/trading-ideas/long-ideas/17/01/8929268/how-hedge-fund-strategies-are-shifting-lower-correlations-and">hedge fund strategies are shifting</a> toward those with lower correlations and increased volatility.

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Quite often, our readers ask how to invest in hedge funds: &ldquo;I don&rsquo;t know the first thing about them. Other than Warren Buffett, who&rsquo;s good? Are the fees worth it?&rdquo;
Looking for an answer to such a common query, Benzinga reached out to <a href="https://www.benzinga.com/topic/don-steinbrugge">Don Steinbrugge</a>, one of the top experts in the hedge fund industry. After roughly two decades working in the space, at Merrill Lynch Investment Managers &mdash; now part of BlackRock, Inc. (NYSE: <a class="ticker" href="/stock/blk#NYSE">BLK</a>) &mdash; and Andor Capital, among others, Steinbrugge founded Agecroft Partners, a global, award-winning hedge fund consulting and marketing firm that he has been running for almost 10 years now.
<h3>Let Someone Else Choose</h3>
&ldquo;For most people that don&#39;t understand hedge funds, a good way to invest in hedge funds is through what is called a fund of funds,&rdquo; the expert declared. &ldquo;It&#39;s basically a manager that invests in hedge funds; so, they might own 10 different hedge funds in their fund&mdash; and then investors will invest in their funds.&rdquo;
&ldquo;So, if you only have $500,000 to invest or $1 million to invest&mdash; If you invest in a fund of funds, you can diversify across a broad portfolio, and someone else does all the hard work of picking the managers for you,&rdquo; he continued.
<h3>The &lsquo;Double-Fees Issue&rsquo;</h3>
&ldquo;The fund of funds industry has gotten a lot of criticism because they charge a double layer of fees: you have to pay the fee of the hedge fund, and then you have to pay the fee of the fund of funds manager,&rdquo; Steinbrugge explained.
&ldquo;However,&rdquo; he went on, &ldquo;what is happening now is that, because these <a href="https://www.benzinga.com/trading-ideas/long-ideas/17/01/8906163/hedge-fund-expert-shares-top-trends-for-2017-fees-will-contin">hedge funds are negotiating fees</a> or have sliding fees schedules, these funds of funds [that] can allocate a lot of money are getting into the hedge funds at a much lower expense level than what an individual would get on its own.&rdquo;
&ldquo;So, now if you invest in a fund of funds, the fact that they are saving so much money on fees from their underlying hedge funds more than offsets <a href="https://www.benzinga.com/personal-finance/financial-advisors/17/02/9000294/expert-why-smaller-hedge-funds-will-continue-to-ou#/null">the fees they charge</a>,&rdquo; he concluded. &ldquo;So, we [at Agecroft] think that the demand for certain funds of funds will go up because of that.&rdquo;
Liked this article? Now check out Steinbrugge&rsquo;s explanation on how <a href="https://www.benzinga.com/trading-ideas/long-ideas/17/01/8929268/how-hedge-fund-strategies-are-shifting-lower-correlations-and">hedge fund strategies are shifting</a> toward those with lower correlations and increased volatility.

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How To Invest In Hedge Funds (When You Don't Understand Them)

<a href="https://www.benzinga.com/topic/don-steinbrugge">Don Steinbrugge</a> is one of the best-known experts in the hedge fund industry, with over three decades of experience in the arena. He has been running Agecroft Partners, a global, award-winning hedge fund consulting and marketing firm for almost 10 years now. Prior to that, he worked at Andor Capital and Merrill Lynch Investment Managers &mdash; now part of BlackRock, Inc. (NYSE: <a class="ticker" href="/stock/blk#NYSE">BLK</a>).
Benzinga recently had the chance to chat with this seasoned expert, who shared some predictions for trends in the hedge fund industry in 2017. In the first part of this series, we looked into <a href="https://www.benzinga.com/trading-ideas/long-ideas/17/01/8906163/hedge-fund-industry-expert-don-steinbrugge-shares-top-trends-">hedge fund fees and how they&rsquo;ll evolve</a> over the year; in the second part, we went into the why hedge funds will <a href="https://www.benzinga.com/trading-ideas/long-ideas/17/01/8906335/hedge-fund-industry-expert-don-steinbrugge-on-trump-administr">benefit under the Trump administration</a>; in the third part, we took a look at asset outflows and <a href="http://www.benzinga.com/personal-finance/financial-advisors/17/01/8906368/hedge-fund-expert-don-steinbrugge-on-money-flows-a">why pension funds invest in hedge funds</a>; in the fourth part, we had the chance to get to know Streinbrugge&rsquo;s <a href="https://www.benzinga.com/general/hedge-funds/17/01/8929397/q-a-with-hedge-fund-industry-expert-don-steinbrugge-rituals-role-m">rituals and role models</a> better; and, in a fifth part, we talked about <a href="https://www.benzinga.com/trading-ideas/long-ideas/17/01/8929268/how-hedge-fund-strategies-are-shifting-lower-correlations-and">shifting hedge fund strategies</a>. In this sixth piece, we&rsquo;ll look into the reasons to believe that smaller managers will continue to outperform larger ones.
<h3>The Problem With Large Managers</h3>
&ldquo;One of the biggest problems with the hedge fund industry is that roughly 70 percent of assets have gone to hedge fund managers with $5 billion or more under management. And, there is an inverse correlation in how much money you manage and the returns you generate,&rdquo; the expert commenced.
In fact, over 2016, smaller funds very comfortably outperformed larger ones. Thru November, the HFRI Fund weighted composite had gained 4.54 percent, while the HFRI dollar weighted composite was up only 1.9 percent.
&ldquo;If you get too big, it&#39;s a lot harder to generate strong returns because you begin to move the market,&rdquo; Steinbrugge explicated. &ldquo;A lot of hedge fund managers focus on inefficiencies in the market; they focus on niche strategies. And, if you try to put a lot of money into a niche strategy, you are going to move the market both when you buy and when you sell, and your performance is going to be hurt because of it.&rdquo;
&ldquo;So, what we [at Agecroft] believe is that small managers are the ones that are going to generate the best returns, and it just so happens that they are also offering the best deal on pricing of their funds, because of the founder&#39;s share they are offering,&rdquo; he added.
<h3>Pension Funds Coming In</h3>
&ldquo;There&#39;s been a big hesitation of pension funds to invest in smaller managers,&rdquo; he ended. &ldquo;Up until now, they preferred to go with the largest funds. But, I think a lot of them are beginning to realize that, if all you do is invest in the largest funds, your returns on your hedge fund portfolio are going to be mediocre. So, there is a trend in the industry for pension funds to kind of move down the size/scale of hedge funds, and I think you&#39;ll see more invested in mid-sized hedge funds in order to enhance their returns.&rdquo;

Expert: Why Smaller Hedge Funds Will Continue To Outperform Larger Ones

<a href="https://www.benzinga.com/topic/don-steinbrugge">Don Steinbrugge</a> is one of the best-known experts in the hedge fund industry, with over three decades of experience in the field. He has been running <a href="http://www.agecroftpartners.com/">Agecroft Partners</a>, a global, award-winning hedge fund consulting and marketing firm for almost 10 years now.
Benzinga had the chance to chat with this seasoned hedge fund industry expert, who shared some predictions for trends in the space in 2017. In the first part of this article, we looked into <a href="https://www.benzinga.com/trading-ideas/long-ideas/17/01/8906163/hedge-fund-industry-expert-don-steinbrugge-shares-top-trends-">hedge fund fees and how they&rsquo;ll evolve</a> over the year; in the second part, we went into the why hedge funds will <a href="https://www.benzinga.com/trading-ideas/long-ideas/17/01/8906335/hedge-fund-industry-expert-don-steinbrugge-on-trump-administr">benefit under the Donald Trump administration</a>. In this third part, we&rsquo;ll take a look at asset outflows and why pension funds invest in hedge funds.
<h3>Pension Funds</h3>
The expert first explained why pension funds invest in hedge funds. &ldquo;[The objective of] most pension funds that are allocating [resources] to hedge funds is not to beat equities, their objective is really to beat fixed income. These pension funds need to be diversified; they can&#39;t have 100 percent in equities, because if the market sells off, at some point, they may not be able to pay pension benefits. So, if hedge funds can outperform their fixed income portfolio, provide uncorrelated returns (that don&#39;t move in the same direction as the bond or equity market) and also help the pension funds if the markets sell off, that adds value to the pension fund.&rdquo;
&ldquo;So, that&#39;s why they are investing. They are investing to beat bonds &ndash; and their bond portfolio right now is projected to generate somewhere around 2.5 or 3 percent,&rdquo; he continued. &ldquo;So, it&#39;s not a very high bar for hedge funds to meet in order to add value to these pension funds &mdash; last year, the average hedge fund was up about 5.6 percent and the Bloomberg Barclays US Aggregate Bond Index was only up about 2.5 percent.&rdquo;
&ldquo;Despite that, the assets coming out of pensions are going to be a lot less than most people think,&rdquo; he added.
<h3>Money Flow</h3>
Among the trends Agecroft predicts for 2017, there&rsquo;s &ldquo;a lot of negative flows or money coming out of the marketplace from large institutional investors. They are getting a lot of pressure from local media, from politicians, and from union employees, to get rid of their hedge funds,&rdquo; Steinbrugge explicated.
&ldquo;And, there&#39;s a disconnect between most people&#39;s impression of hedge funds and why institutional investors are investing in hedge funds. One of those disconnects is relative to performance. A lot of people compare the return of hedge funds to the S&amp;P 500 and the SPDR S&amp;P 500 ETF Trust (NYSE: <a class="ticker" href="/stock/spy#NYSE">SPY</a>), and the reality is that is not the benchmark investors use for their hedge fund portfolio.&rdquo;
&ldquo;Hedge funds are a fund structure, and within that fund structure there are a lot of different strategies that have no correlation to the S&amp;P 500 [...] You have money market funds, bond funds&mdash; For equity funds, you probably should compare those to the S&amp;P 500, but most strategies [among hedge funds] don&#39;t have a lot of equity exposure,&rdquo; he went on.
&ldquo;Now, even though I do think that net flows to the hedge fund industry are going to be negative, I think in 2017 hedge fund assets will reach an all-time high,&rdquo; the expert declared. &ldquo;The average estimate is like $3 trillion. Last year, about 2.5 percent of the industry assets left, but the average return across hedge funds was 5.6 percent, so the performance offset the net redemption, which caused assets to be at an all-time high. And, I think we are going to see the same thing in 2017: We are projecting 3 percent net redemption from the industry, but we are forecasting an average return of 5 percent. So, we are expecting industry assets to be up about 2 percent at the end of the year.&rdquo;

Hedge Fund Expert Don Steinbrugge On Money Flows And Why Pension Funds Invest In Hedge Funds

Don Steinbrugge is one of the best-known experts in the hedge fund industry, with over three decades of experience in the field. He has been running Agecroft Partners, a global, award-winning hedge fund consulting and marketing firm for almost 10 years now.
Benzinga had the chance to chat with this seasoned hedge fund industry expert, who shared some predictions for trends in the space in 2017. In the first part of this article, we looked into <a href="https://www.benzinga.com/trading-ideas/long-ideas/17/01/8906163/hedge-fund-industry-expert-don-steinbrugge-shares-top-trends-">hedge fund fees and how they&rsquo;ll evolve</a> over the year; in this second part, we&rsquo;ll go into the expert&rsquo;s explanation of why hedge funds will benefit under the Donald Trump administration.
<h3>Correlations And Volatility</h3>
&ldquo;We think hedge funds, especially long/short equity [funds] should do better with the election of Donald Trump as the president,&rdquo; Steinbrugge voiced, expounding that, in contrast, over the past few years, long/short equity managers have had a tough time outperforming the market because:
<ul>
<ol>
<li>&ldquo;Correlations, or the relative movement of stocks, has been very high.&rdquo;</li>
<li>&ldquo;At the same time, the volatility, or the movement of stock prices, has been really low.&rdquo;</li>
</ol>
</ul>
&ldquo;This has been driven by an accommodating Fed &mdash; and monetary authorities all around the world trying to stimulate their economies,&rdquo; the expert added. &ldquo;That, and a lot of money going into ETFs and index funds, has caused the relative movement to be very high.&rdquo;
&ldquo;If you are a long/short equity manager, you are trying to buy stocks you think are going to go up, and you are trying to sell short stocks you think are going to go down,&rdquo; Steinbrugge went on. &ldquo;And if the stocks you sell short go down, and the stocks you go long go up, you make a lot of money; but, if they are all moving kind of in the same direction, it&#39;s difficult to generate strong returns.&rdquo;
&ldquo;So, with Trump as a new president, we think it&#39;s going to cause a lot more volatility in the marketplace, because his whole agenda is to make change. And when you have change, certain companies and certain industries are going to benefit relative to others.&rdquo;
<h3>The Risks</h3>
&ldquo;In general, the market is pretty positive on Trump, but there&#39;s risk with Trump,&rdquo; Steinbrugge commented. &ldquo;There&#39;s a possibility that some of his policies might not go through, or that he might do something that might cause the markets to sell off.&rdquo;
&ldquo;So, we think correlations are going to go down between stocks, volatility is going to go up, and that is going to make it easier for long/short equity managers to generate returns,&rdquo; he concluded.
Image Credit: By Gage Skidmore from Peoria, AZ, United States of America - Donald Trump, CC BY-SA 2.0, <a href="https://commons.wikimedia.org/w/index.php?curid=52646488">via Wikimedia Commons</a>

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Politics

Hedge Fund Expert On Trump Administration: 'Long/Short Equity Managers Will Benefit'

Don Steinbrugge is one of the best-known experts in the hedge fund industry, with over three decades of experience in the field. He has been running Agecroft Partners, a global, award-winning hedge fund consulting and marketing firm for almost 10 years now.
Prior to Agecroft, Steinbrugge spent 18 years working with institutional investors, serving as the head of institutional sales for Merrill Lynch Investment Managers &mdash; now part of BlackRock, Inc. (NYSE: <a class="ticker" href="/stock/blk#NYSE">BLK</a>) &mdash; and then as founding principal of Andor Capital, the second largest hedge fund firm in the world at the time.
Benzinga had the chance to chat with this seasoned hedge fund industry expert, who shared some predictions for trends in the space in 2017. In this article, we&rsquo;ll look into hedge fund fees and their evolution.
<h3>The Evolution Of Fees</h3>
Agecroft&rsquo;s first prediction concerns the continuation in the evolution in hedge fund fees.
&ldquo;Hedge funds historically had two different types of fees; one was a management fee, and that was a percent of the assets, and, if you went back 10 years ago, the average hedge fund was getting about 2 percent management fee per year. The second fee they get is a performance fee, and traditionally, it&#39;s been 20 percent of whatever performance they generate. And they get both,&rdquo; Steinbrugge explicated.
However, he continued, &ldquo;there&#39;s been a lot of fee pressure put on hedge funds over the past five years and, as a result of that, hedge fund fees are coming down in a number of different ways:&rdquo;
<ul>
<ol>
&ldquo;Most of the hedge fund money is going to very large hedge funds. Roughly 70 percent of assets are with hedge funds that have $5 billion or more [in assets under management]. There are 15,000 hedge funds and a majority of those are below $100 million. And, last year, only 5 percent of assets went to hedge fund managers with less than $100 million in assets [under management]. So, these managers are having a great amount of difficulty raising money. A trend in the hedge fund industry is that they are coming out with something called &#39;founders share,&#39; which are huge discounts on fees for investors who invest early, when the hedge fund is small. Then, those fees are grandfathered once assets get above $150 million or $200 million.&rdquo;
<li>&ldquo;Fees are also coming down significantly for large pension funds [...] What hedge funds have begun to do is scale their fees. Basically, the more money you invest, the lower the fee.&rdquo;</li>
<li>&ldquo;Another thing hedge funds are doing is negotiating fees with these large managers. What they are trying to do is really tailor the fee to the needs of a large pension fund [...] [In addition, hedge funds] are willing to consider a hurdle, which is basically: &#39;you have to return a certain percent before the performance fee kicks in.&#39; And, they are also willing to negotiate kind of a crystallization period of the performance fee; so, typically the performance fee is payed once a year, and some of these institutional investors are asking hedge funds to lengthen the crystallization period after three years.&rdquo;</li>
</ol></ul>

Hedge Fund Expert Shares Top Trends For 2017: 'Fees Will Continue To Evolve'

Investors withdrew more than $25 billion last month from hedge funds at a time when many insiders are claiming the industry is "under assault."
According to <A href="https://www.bloomberg.com/gadfly/articles/2016-08-25/hedge-fund-bloodletting-should-prompt-contemplation">Bloomberg Gadfly's Christopher Langner,</a> the mass exodus of customers out of hedge funds is not a sign that the industry is dying, but it is shrinking.
Langner noted that July's redemption data are the worst in terms of redemptions since February 2009, and they are slightly above June's total net outflow of $23.5 billion.
<bzrelatedlink>Related Link: <a href="http://www.benzinga.com/analyst-ratings/analyst-color/16/05/7978314/leon-cooperman-thinks-the-hedge-fund-industry-is-under-a">Leon Cooperman Thinks The Hedge Fund Industry Is Under Attack</a></bzrelatedlink>
However, he pointed out the hedge fund industry manages a staggering $2.7 trillion, making this year's total redemptions of $55.9 billion look like "a drop in the ocean."
Langner continued that there has been a strong inflow to hedge funds since 2009, so it is only "natural" that investors are taking money off the table. Also, commodity related hedge funds continue to attract new money this year and has seen a total net inflow of $10.3 billion over the past 14 months.
"Those two facts seem to support the idea that the latest move is more of an adjustment than a final breath for the industry," Langner stated. "The majority of redemptions happened among money-losing funds, and inflows were recorded for those that gained more than 7 percent this year."
Bottom line, it will take "dozens of bad months like July" before the hedge fund industry faces any sort of threat to its existence. It is, however, a good time for hedge fund managers to "rethink their ways."
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Media

Hedge Funds Are Still Very Much Alive

No one likes being mislead, but it does happen occasionally to ETF investors.

	That is not to say fund issuers are maliciously misleading investors. However, a few minutes (literally less than five minutes) of homework before buying an ETF can help investors avoid surprises.

	Take the example of the SPDR S&amp;P Homebuilders ETF (NYSE: <a class="ticker" href="/stock/xhb#NYSE">XHB</a>). Investors see "homebuilders" in the name and expect XHB to be heavy on, well, shares of homebuilders. In reality, there is not a single homebuilder among XHB's current top-10 holdings. The ETF does, however, offer significant exposure to home goods and durables makers and retailers such as Williams-Sonoma (NYSE: <a class="ticker" href="/stock/wsm#NYSE">WSM</a>) and Whirlpool (NYSE: <a class="ticker" href="/stock/whr#NYSE">WHR</a>).

	Investors wanting deeper exposure to homebuilders should opt for the iShares U.S. Home Construction ETF (NYSE: <a class="ticker" href="/stock/itb#NYSE">ITB</a>), but the XHB example is not the only one where investors should do some digging beyond merely looking at a fund's name. Consider the following.

	IndexIQ Merger Arbitrage ETF (NYSE: <a class="ticker" href="/stock/mna#NYSE">MNA</a>) 
	The problem with the IndexIQ Merger Arbitrage ETF is not really its name because this ETF does exactly what its name implies. That is track an index that "seeks to achieve capital appreciation by investing in global companies for which there has been a public announcement of a takeover by an acquirer," <a href="http://www.indexiq.com/etfs/etfsiqh/iq-merger-arbitrage-etf.html">according to the issuer</a>.

	What investors should focus on is "Arbitrage" in MNA's name and "public announcement" in the description because the ETF does not shares of <a href="http://www.benzinga.com/trading-ideas/long-ideas/13/02/3339547/deal-making-lifts-m-a-etf">companies that are rumored takeover targets</a>. Current top holdings such as Dell (NASDAQ: <a class="ticker" href="/stock/dell#NASDAQ">DELL</a>) and Smithfield Foods (NYSE: <a class="ticker" href="/stock/sfd#NYSE">SFD</a>) have something in common: A takeover has already been announced. MNA is up 5.8 percent year-to-date.

	First Trust US IPO Index Fund (NYSE: <a class="ticker" href="/stock/fpx#NYSE">FPX</a>) 
	Helped by Facebook's (NASDAQ: <a class="ticker" href="/stock/fb#NASDAQ">FB</a>) resurgence and subsequent move past its $38 IPO price, FPX is suddenly the toast of the town. There is always room on a bandwagon, but the bandwagon <a href="http://www.benzinga.com/trading-ideas/long-ideas/13/01/3216244/these-low-volume-etfs-could-thrive-in-2013">left the station in January</a> not July.

	A few things about FPX should be emphasized. Facebook is not the only stock contributing to the ETF's upside, though it is 10.3 percent of the fund's weight. Second, FPX is trading near all-time highs, but has the look of an ETF that can keep building on those gains.

	Related: <a href="http://www.benzinga.com/trading-ideas/long-ideas/13/01/3216244/these-low-volume-etfs-could-thrive-in-2013">These All-Time ETFs Can Keep Going</a>.

	Perhaps most importantly is the fact that FPX not a play on IPO market activity and implying as much, as some have done, is simply inaccurate. Perfect example: FPX gained almost 29 percent in 2012, which was arguably just a mediocre year in terms of IPOs coming to market.

	It should also be noted that FPX can hold companies for up 1,000 days following their debuts as public company. Of the ETF's top-10 holdings, a group that represents half of the fund's weight, only AbbVie (NYSE: <a class="ticker" href="/stock/abbv#NYSE">ABBV</a>) started trading this year.

	And the example of AbbVie brings up another important point about FPX: The ETF is loaded with spin-offs and companies that were previously public and taken private by private equity firms only to go public again. And it is hard to consider General Motors (NYSE: <a class="ticker" href="/stock/gm#NYSE">GM</a>), FPX's third-largest holding "new."

	None of this is to say FPX is a bad ETF. It is not. Frankly, FPX is <a href="http://www.benzinga.com/trading-ideas/long-ideas/13/07/3787639/interesting-themes-among-new-etfs-hitting-all-time-highs">a great ETF</a>, which is confirmed by the fact that the fund has doubled since its debut seven years ago. However, FPX is not a play on IPO market activity and investors should not expect last week's IPOs to be included in the ETF this week.

	For more on ETFs, click <a href="http://www.benzinga.com/etfs">here</a>.

Broad U.S. Equity ETFs

IPOs

Intraday Update

Markets

ABBV

DELL

iShares Dow Jones US Homenstruction Index Fund

Two Highly Misunderstood ETFs

Feel like gambling, but don’t want to drive all the way to the casino? Instead of sitting down at the Blackjack table, investors might try to predict the next surprise M&amp;A takeover target.

	According to <a href="http://apnews.myway.com/article/20130216/DA4FD3M80.html">The Associated Press</a>, U.S. companies, over the past few months, have announced a dozen deals worth $3 billion or more in mining, food, technology, airlines, and other industries. Stocks of the acquired companies have soared 20 percent or more following the announcement.

	Billionaire, Warren Buffett and his company, Berkshire Hathaway (NYSE: BRK-B), joined with another investment firm to buy H.J. Heinz Co. (NYSE: <a class="ticker" href="/stock/hnz#NYSE">HNZ</a>) for $23 billion. The deal works out to $72.50 per share or roughly 20 percent higher than the ketchup company’s share price the day before the deal was announced.

	On Friday, the SEC announced that the assets of a few unnamed investors were frozen because they were “lucky enough” to purchase more than 200,000 Heinz call options the day before the announcement, according to <a href="http://www.post-gazette.com/stories/business/news/sec-freezes-swiss-assets-over-heinz-trading-675627/">the Post-Gazette.</a>

	The SEC routinely reviews trading logs following big announcements. In this case, these traders’ luck is about to run out.

	Another notable example of shareholder luck involved the acquisition of Dell (NASDAQ: <a class="ticker" href="/stock/dell#NASDAQ">DELL</a>) by Michael Dell and an investment firm in a move designed to take the publicly traded computer company private. The sales price? $24 billion or $13.65 per share, a 25 percent premium over the pre-announcement price.

	How do you find the next possible target? It’s not easy. But a reasonably valued stock and a company with low debt and a history of generating lots of cash make for good candidates but even that isn’t always true. Among the current rumored takeover candidates are Kohls (NYSE: <a class="ticker" href="/stock/kss#NYSE">KSS</a>), Chesapeake Energy (NYSE: <a class="ticker" href="/stock/chk#NYSE">CHK</a>), and City National (NYSE: <a class="ticker" href="/stock/cyn#NYSE">CYN</a>).

	But as gamblers know, the bet can and often does go against them. In May 2012, pharmaceutical company Warner Chillcot’s (NASDAQ: <a class="ticker" href="/stock/wcrx#NASDAQ">WCRX</a>) stock spiked 43 percent on rumors that it was a takeover target. Later, when the company announced that it wasn’t interested, the stock lost half of its value.

	Those who prefer a little more stability may want to check out the IndexIQ Merger Arbitrage ETF (NYSE: <a class="ticker" href="/stock/mna#NYSE">MNA</a>).

	MNA is home to companies for which there has been a public announcement of a takeover by an acquirer. This is not an ETF that allows investors to play the rumor mill.

WCRX

Should Traders Consider M&A Rumors?

From Comcast's (NASDAQ: <a class="ticker" href="/stock/cmcsa#NASDAQ">CMCSA</a>) $16.7 billion deal to acquire the portion of NBCUniversal it did not already own to US Airways (NYSE: <a class="ticker" href="/stock/lcc#NYSE">LCC</a>) purchasing rival AMR (OTC: <a class="ticker" href="/stock/aamrq#OTC">AAMRQ</a>) to Berkshire Hathaway (NYSE: BRK-A) and a Brazilian partner moving on H.J. Heinz (NYSE: <a class="ticker" href="/stock/hnz#NYSE">HNZ</a>), this week has been a busy one on the mergers and acquisitions front. 

The brisk deal-making pace has been good news for one ETF perceived to be a play on increased mergers and acquisitions activity. That being the IndexIQ Merger Arbitrage ETF (NYSE: <a class="ticker" href="/stock/mna#NYSE">MNA</a>), which gained more than 1.3 percent this week amid the flurry of M&amp;A headlines.

What is important to note with MNA, and it is overlooked by those not familiar with the ETF, is that the fund is not comprised rumored takeover candidates. Rather, MNA is true to its name and is home to "global companies for which there has been a public announcement of a takeover by an acquirer," according to IndexIQ.

Rather, MNA is an arbitrage play, or a way to profit from the way professional investors buy and sell the stocks of the acquiring and target companies. In other words, Heinz is currently not one of MNA's constituents, but it could be in the future. 

Some of MNA's top equity holdings currently include NYSE Euronext (NYSE: <a class="ticker" href="/stock/nyx#NYSE">NYX</a>), Nexen Energy (NYSE: <a class="ticker" href="/stock/nxy#NYSE">NXY</a>), Best Buy (NYSE: <a class="ticker" href="/stock/bby#NYSE">BBY</a>) and Sprint (NYSE: <a class="ticker" href="/stock/s#NYSE">S</a>). 

At the sector level, MNA is diverse. Consumer staples lead the way with a 21 percent weight, but financial services, energy, health care and consumer discretionary also receive double-digit allocations. As of the end of 2012, MNA was heavily focused on U.S. stocks, but almost 39 percent of its weight was spread among <a href="http://www.indexiq.com/docs/mna/factsheet.pdf">Canada, the Netherlands and Australia</a>.

Speaking of global exposure, another overlooked feature of MNA is that the ETF features short positions on some international stocks a partial market hedge. MNA's equity market hedge was -14 percent of the total portfolio at the end of 2012.

MNA does have some rivals in the arbitrage in ETF niche, notably the Credit Suisse Merger Arbitrage Liquid Index ETN (NYSE: <a class="ticker" href="/stock/csma#NYSE">CSMA</a>) and the ProShares Merger ETF (BATS: MRGR), but the IndexIQ has been the top performer of the group over the past year.

For more on ETFs, click <a href="http://www.benzinga.com/etfs">here</a>.

Rumors

Events

After-Hours Center

AAMRQ

CSMA

Deal Making Lifts M&A ETF

ProShares, the largest issuers of inverse and leveraged ETFs, will list its newest ETF, the ProShares Merger ETF, on the BATS exchange when the ETF debuts on Thursday, December 13. The ProShares Merger ETF will trade on BATS under the ticker "MRGR."

MRGR, which appears to be a competitor to the IndexIQ Merger Arbitrage ETF (NYSE: <a class="ticker" href="/stock/mna#NYSE">MNA</a>), will be part of the BATS competitive liquidity program, <a href="http://www.tradersmagazine.com/news/bats-lists-proshares-etfs-110615-1.html">according to Traders Magazine</a>.

In November 2011, BATS sought comments from the Securities and Exchange Commission on the possibility of listing three managed futures ETFs sponsored by ProShares, <a href="http://www.forbes.com/sites/ariweinberg/2012/11/26/proshares-considers-listing-products-with-bats/">Forbes reported</a>. ProShares is known primarily for its so-called "geared" ETFs such as the ProShares UltraShort FTSE China 25 (NYSE: <a class="ticker" href="/stock/fxp#NYSE">FXP</a>) and the ProShares Ultra QQQ (NYSE: <a class="ticker" href="/stock/qld#NYSE">QLD</a>). To this point, the firm's success with traditional ETFs has been limited.

Still, the listing of a the new ProShares fund on its exchange could be seen as a coup for BATS <a href="http://www.benzinga.com/trading-ideas/long-ideas/12/03/2445345/bats-rough-start-not-effecting-its-etfs-bats-enor-eden">following its bungled IPO attempt earlier this year</a>. The exchange told Traders Magazine is eying additional listings of ProShares ETFs in 2013.

BATS Exchange is already home to 16 iShares ETFs. The world's largest ETF sponsor was the first to list funds on BATS with the iShares MSCI Norway Capped Investable Market Index Fund (BATS: ENOR) being the first. 

Other iShares offering listed on BATS include the iShares MSCI Denmark Capped Investable Market Index Fund (BATS: EDEN), the Shares MSCI Canada Small Cap Index Fund (BATS: EWCS) and the iShares MSCI India Small Cap Index Fund (BATS: SMIN)

For more on ETFs, click <a href="http://www.benzinga.com/etfs">here</a>.

New ETFs

Pre-Market Outlook

ProShares to List Merger ETF on BATS Exchange

For those that have always wanted to invest in a hedge fund, but can't afford those pesky minimum investments (often well into six and seven figures) or for those that want to part with 2% or 3% in management fees on top of 20%-30% of the profits, the ETF industry is attempting to come to the rescue.

Hedge fund ETFs have been around for several years, but some new entrants to the hedge fund ETF game have popped up recently. The newest is the Global X Top Guru Holdings Index ETF (NYSE: <a class="ticker" href="/stock/guru#NYSE">GURU</a>), which debuted today.

GURU's goal is to aggregate on a quarterly basis the expertise and knowledge of hedge fund managers into the transparent, cost-efficient and easily accessible format of an ETF—with no minimum investment, according to a statement issued by New York-based Global X. 

Home to 52 stocks, GURU is an equal-weight fund as each of its constituents has an allocation of 1.96%. The ETF's roster includes Apple (Nasdaq: <a class="ticker" href="/stock/aapl#Nasdaq">AAPL</a>), Google (Nasdaq: <a class="ticker" href="/stock/goog#Nasdaq">GOOG</a>), Microsof (Nasdaq: <a class="ticker" href="/stock/msft#Nasdaq">MSFT</a>), Kraft (NYSE: <a class="ticker" href="/stock/kft#NYSE">KFT</a>), J.P. Morgan Chase (NYSE: <a class="ticker" href="/stock/jpm#NYSE">JPM</a>), BHP Billiton (NYSE: <a class="ticker" href="/stock/bhp#NYSE">BHP</a>) and Cisco Systems (Nasdaq: <a class="ticker" href="/stock/csco#Nasdaq">CSCO</a>).

GURU tracks the top Guru Holdings Index uses a proprietary methodology to compile the highest conviction ideas from a select pool of hedge funds where the 13F information is most valuable.  Hedge funds with high turnover and non-concentrated positions are eliminated from the pool.  The fund is designed to rebalance quarterly in accordance with the 13F reports to capture any significant position changes, Global X said in the statement.

Piggybacking the elite hedge fund managers sounds like a good idea, but what makes this endeavor tricky is these managers may already be out of certain stocks by the time the 13F's are filed. Not to mention, not all hedge fund legends are legendary all the time. Sure, David Einhorn has been of fire as of late, but John Paulson's eponymous Paulson &amp; Co. struggled through a nasty 2011.

In GURU's defense, it charges just 0.75% per year and all of the profits are the investor's to keep. At least that's a better deal than one would get with the typical hedge fund.

Other hedge fund ETFs include the newly minted AlphaClone Alternative Alpha ETF (NYSE: <a class="ticker" href="/stock/alfa#NYSE">ALFA</a>), the IndexIQ Merger Arbitrage ETF (NYSE: <a class="ticker" href="/stock/mna#NYSE">MNA</a>) and the IndexIQ CPI Inflation Hedge ETF (NYSE: <a class="ticker" href="/stock/cpi#NYSE">CPI</a>).

Movers

AAPL

ALFA

CSCO

GOOG

GURU

MSFT

A Look At The New Guru ETF (GURU, ALFA, CPI)

The new National Exchange Traded Funds Association, or NEFTA, will be without the exchange-traded products universe's heaviest hitters as it starts life as the industry's first trade association. BlackRock's (NYSE: <a class="ticker" href="/stock/blk#NYSE">BLK</a>) iShares, State Street's (NYSE: <a class="ticker" href="/stock/stt#NYSE">STT</a>) State Street Global Advisors and Vanguard <a href="http://www.etftrends.com/2012/05/biggest-etf-firms-eschew-new-trade-association/">have all decided against joining NEFTA</a>.

The trio, sometimes accused of being an ETF monopoly, account for massive chunk of U.S. ETF and ETN assets under management. At the end of April, the three had combined exchange-traded products AUM of just over $1 trillion while the ETFs and ETNs listed in the U.S. had just over $1.2 trillion in AUM combined, according to data from the ETF Industry Association.

The chairman of NEFTA is John T. Hyland, the chief investment officer of United States Commodity Fund, the firm behind the U.S. Oil Fund (NYSE: <a class="ticker" href="/stock/uso#NYSE">USO</a>). NEFTA's vice chairman is IndexIQ CEO Adam Patti. IndexIQ sponsors the IndexIQ Merger Arbitrage ETF (NYSE: <a class="ticker" href="/stock/mna#NYSE">MNA</a>), among others.

The <a href="http://www.benzinga.com/news/12/04/2519784/finally-an-etf-trade-association">debut of NEFTA was announced last month</a> but high-level executives from SSgA and Vanguard <a href="http://online.barrons.com/article/SB50001424053111903935304577376061145735748.html?mod=BOL_funds_recent">confirmed in the most recent issue of Barron's</a> that their firms will not be part of NEFTA.

The Investment Company Institute, or ICI, has been the lobbying operation for the fund industry for more than seven decades and that is the group iShares, SSgA and Vanguard or opting to stick with over NEFTA, Barron's reported.

For more on NEFTA, please click <a href="http://www.benzinga.com/news/12/04/2519784/finally-an-etf-trade-association">HERE</a>.

Barron's

Emerging Market ETFs

Currency ETFs

Big 3 Pass On ETF Trade Group

There are nearly 8,000 trade associations in the U.S. encompassing major industries ranging from oil to telecom to technology. There's even a trade association for convenience stores and one for America's <a href="http://www.acenational.org/aboutace.htm">adult nightclubs</a>.

Now, the almost $1.2 trillion U.S. exchange-traded products industry has its own trade group, the National Exchange Traded Funds Association, or NEFTA. 

The chairman of NEFTA is John T. Hyland, the chief investment officer of United States Commodity Fund, the firm behind the U.S. Oil Fund (NYSE: <a class="ticker" href="/stock/uso#NYSE">USO</a>) and the U.S. Natural Gas Fund (NYSE: <a class="ticker" href="/stock/ung#NYSE">UNG</a>). NEFTA's vice chairman is IndexIQ CEO Adam Patti. IndexIQ sponsors the IndexIQ Merger Arbitrage ETF (NYSE: <a class="ticker" href="/stock/mna#NYSE">MNA</a>) and the IndexIQ Canada Small Cap ETF (NYSE: <a class="ticker" href="/stock/cnda#NYSE">CNDA</a>) among others.

The focus of the NETFA is to educate institutional and retail investors, as well as the advisor community, on the benefits and uses of ETFs. NETFA will provide industry statistics and commentary on ETF related issues to the US financial media, and advance industry issues with regulators, government agencies and interested third parties, according to a statement issued by NEFTA.

"Once an industry sector achieves a certain scale, it can no longer depend on ad-hoc efforts by individual companies, or the efforts of non-ETF industry groups, to represent itself to the public or to the regulators," Patti said in the statement. "This is the first step in a long journey to establish a professional and coordinated approach to the topics of investor education and industry representation."

Membership in NETFA will be open to any Exchange Traded Fund issuer or sponsor. There is also a class of membership for firms that are active in the ETF industry, but are not issuers of ETFs. 

For more information on NEFTA, the Web site is <a href="http://www.nationaletf.org/">http://www.nationaletf.org/</a>

CNDA

Finally, An ETF Trade Association

ProShares, the fifth-largest U.S. ETF issuer by assets at the end of February, has filed plans with the Securities and Exchange Commission to possibly introduce two new ETFs that would expand the company's lineup of non-leveraged and non-inverse products.

Maryland-based ProShares has filed plans for the ProShares Listed Private Equity ETF and the ProShares Merger Arbitrage ETF. Tickers and expense ratios for the funds were not included in the filings.

The ProShares Listed Private Equity ETF would appear to be a possible rival to the PowerShares Global Listed Private Equity Portfolio (NYSE: <a class="ticker" href="/stock/psp#NYSE">PSP</a>). That ETF has been around since 2006 and has over $290 million in assets under management despite sporting an expense ratio 2.55%. PSP has risen almost 19% year-to-date.

The ProShares Merger Arbitrage ETF would be walking into a rivalry with the IndexIQ Merger Arbitrage ETF (NYSE: <a class="ticker" href="/stock/mna#NYSE">MNA</a>). MNA debuted in November 2009 and has an expense ratio of 0.76%. Current top-10 holdings in MNA include El Paso (NYSE: <a class="ticker" href="/stock/ep#NYSE">EP</a>) and Illumina (Nasdaq: <a class="ticker" href="/stock/ilmn#Nasdaq">ILMN</a>).

ILMN

PowerShares Listed Private Equity Portfolio

ProShares Files For Arbitrage, Private Equity ETFs (PSP, MNA)

It's practically a sport among ETF critics these days, and no, we're not talking about the tired practice of bashing leveraged ETFs. That went out of style with shoulder pads and the Miami Vice look. We're talking about bashing niche ETFs. 

Apparently, ETF critics can tolerate the existence of basic fare such as the SPDR S&amp;P 500 (NYSE: <a class="ticker" href="/stock/spy#NYSE">SPY</a>). Along comes an ETF like the Global X Fishing Industry ETF (NYSE: <a class="ticker" href="/stock/fisn#NYSE">FISN</a>) and some folks get a little surly. 

Like it or not, niche ETFs will probably keep growing in number and the point of this exercise isn't praise or condemn their existence. Rather it's merely to point out which ones might be worth your time in 2012. As always, in no particular order...

First Trust ISE Cloud Computing Index Fund (Nasdaq: <a class="ticker" href="/stock/skyy#Nasdaq">SKYY</a>):
SKYY has taken its shares of dings and yes, it's down since its debut. However, did you know SKYY has outperformed the following major tech plays in the past three months: Apple (Nasdaq: <a class="ticker" href="/stock/aapl#Nasdaq">AAPL</a>), Amazon (Nasdaq: <a class="ticker" href="/stock/amzn#Nasdaq">AMZN</a>) and the PowerShares QQQ (Nasdaq: <a class="ticker" href="/stock/qqq#Nasdaq">QQQ</a>)? Over that time, the results aren't even close. SKYY is the clear winner and $63.2 million in assets under management indicate someone believes in this fund.

Guggenheim Spin-Off ETF (NYSE: <a class="ticker" href="/stock/csd#NYSE">CSD</a>):
While the Guggenheim Spin-Off doesn't immediately add companies that have recently been spun off, the sheer amount of spinoffs conducted in 2011 means the ETF could add several new constituents next year. Plus the ETF can make a claim a lot of others can't: It's positive year-to-date.

Guggenheim Insider Sentiment ETF (NYSE: <a class="ticker" href="/stock/nfo#NYSE">NFO</a>):
We giveth and we taketh away. For as much as we like CSD, we're not huge fans of an ETF that tries to capture insider buying trends. However, NFO's almost $110 million in AUM is pretty impressive for an ETF that is arguably quite obscure. An allocation of over 17% to financials is enough to pass on this ETF until that sector gets its act together.

IndexIQ Merger Arbitrage ETF (NYSE: <a class="ticker" href="/stock/mna#NYSE">MNA</a>):
The ticker probably deceives some folks into thinking this ETF is a play on increased mergers and acquisitions activity, but the name tells us this is an arbitrage play. This is a very niche concept, but give MNA some love. The ETF has been a better play than buying investment banking stocks hoping they'll rise on increased M&amp;A volume.

First Trust NASDAQ CEA Smartphone Index Fund (Nasdaq: <a class="ticker" href="/stock/fone#Nasdaq">FONE</a>):
FONE is another niche tech sector fund that has taken its lumps this year, though in this case, those lumps might be deserved. The statistics show a bull case for smartphone stocks in the coming years, but FONE has been hung up on to the tune of almost 23% this year. Just over $13 million in AUM will keep the ETF alive for a while, but the performance needs to turn around in 2012. 

iShares MSCI USA Minimum Volatility Index (NYSE: USMV):
Yes, we're quite comfortable calling a minimum volatility ETF a niche ETF. USMV isn't even two months old as of this writing so we'll give it a break on just $5.1 million in AUM. iShares typically doesn't have ETFs that close and investors might embrace USMV when they realize that the index it tracks has frequently outperformed the MSCI USA Index.

Global X Social Media ETF (Nasdaq: <a class="ticker" href="/stock/socl#Nasdaq">SOCL</a>):
We've been supporters of <a href="">this ETF</a> and it's also fair to say one of the newest offerings from Global X has its share of detractors. Well, everyone is eventually right in the financial markets. SOCL's performance out of the gates is fodder for the ETF's naysayers, but when social media stocks start taking off, so will SOCL and our thesis will be validated. 

iShares KLD 400 Social Index Fund (NYSE: KSI):
Not social media, but socially responsible - that's what this ETF is about. Maybe there is something to socially responsible investing as KSI doesn't get outpaced by the S&amp;P 500, but the expense ratio is kind of high at 0.5% in terms of ETFs that are basically U.S. large-cap funds. Quibbles: Arguably McDonald's (NYSE: <a class="ticker" href="/stock/mcd#NYSE">MCD</a>) in an ETF's top-10 holdings and a 5.3% weight to oil stocks is NOT socially responsible.

IndexIQ U.S. Real Estate Small Cap ETF (NYSE: <a class="ticker" href="/stock/roof#NYSE">ROOF</a>):
There are lots of large-cap REITs out there, so we're giving the only small-cap REIT niche designation. Since it's June debut, ROOF has attracted an admirable $8.58 million in assets under management. That's decent, but that number should grow and do so significantly next year if ROOF wants to be a real player among REIT ETFs.

PowerShares Convertible Securities ETF (NYSE: CVRT):
One would think with all the crowing ETF critics do about niche funds, the PowerShares Convertible Securities ETF would be one of their prime targets. It's not and at least the ETF can say it has a decent yield at 3.2% and almost $8.8 million in AUM.

PowerShares Senior Loan Portfolio (NYSE: <a class="ticker" href="/stock/bkln#NYSE">BKLN</a>):
Here's one that we really thought the critics would assail, but they would be off base if they did. BKLN is only down 1.3% year-to-date and it features a yield over 5.2%. With almost $175 million in AUM, BKLN has proven to be one of 2011's best new ETFs across any sector or asset class in terms of attracting new investments. It could be a buy above $24.

WisdomTree Managed Futures ETF (NYSE: <a class="ticker" href="/stock/wdti#NYSE">WDTI</a>):
We recently explored the virtues of this <a href="">managed futures play</a>. All of a sudden, the Wisdom Tree Managed Futures ETF is worth a look if for no other reasons than gold and silver's awful price action recently. After all, WDTI holds short positions in those commodities.

Dividends

Futures

Technicals

Tech

AMZN

BKLN

FISN

FONE

ROOF

SKYY

SOCL

Twelve For '12: Niche ETFs to Watch In The New Year 

Four Hedge Fund ETFs Your Broker Forgot To Tell You About

Some kids grow up dreaming about becoming movie stars or athletes. That's understandable, but some adults (and maybe some kids, too) fantasize about becoming hedge fund managers. 

If you've ever found yourself day-dreaming about becoming the next Steven Cohen or Bill Ackman, no one would blame you. After all, those guys have more money than most movie stars and athletes. Still, realizing that dream is easier said than done, but if you want to play hedge fund manager with your own portfolio, there's an ETF for that.

Actually, there are plenty of hedge fund replication ETFs, many of which your broker forgot to mention. Here a few funds that will help channel your inner hedge fund guru.

iShares Diversified Alternatives Trust (NYSE: ALT):
The iShares Diversified Alternatives Trust makes no bones about it. Right there on the iShares Web page, this ETF is described as NOT a traditional ETF. The objective of the iShares Diversified Alternatives Trust is to “maximize absolute returns from investments with historically low correlation to traditional asset classes while seeking to control the risks and volatility inherent in futures and forward contracts by taking long and short positions in historically correlated assets,” according to iShares.

Nearly two years old, ALT has done a fine job of attracting assets with nearly $128 million undeer management. Just be aware of the high expense ratio at 0.95%.

IQ Hedge Fund Multi-Strategy Tracker ETF (NYSE: <a class="ticker" href="/stock/qai#NYSE">QAI</a>):
The IQ Hedge Fund Multi-Strategy Tracker ETF seeks to deliver a performance that is comparable to the hedge fund universe at large. These days that might not be such a good thing as some of the biggest names in the hedge fund game are struggling to generate alpha. QAI uses myriad strategies, including long/short equity, fixed income arbitrage, global macro and emerging markets to accomplish its objective. 

Perhaps the biggest advantage with the IQ Hedge Fund Multi-Strategy Tracker is that IQ Global is one of the top issuers of hedge fund ETFs and in a favorable market environment, QAI has legitimate alpha-generating potential.

ProShares Hedge Replication ETF (NYSE: HDG):
ProShare is the biggest issuer of inverse and leveraged ETFs, so the ProShares Hedge Replication ETF is somewhat of a departure for this ETF issuer. HDG is still less than two months old, but the approach is novel as this new ETF tracks an index that follows a universe of 2,000 different hedge funds.

IQ Merger Arbitrage ETF (NYSE: <a class="ticker" href="/stock/mna#NYSE">MNA</a>):
As we have noted many times in the past, the IQ Merger Arbitrage ETF is not a play on increased mergers and acquisitions activity. MNA is an arbitrage play on companies for which public takeover announcements have already been made. The index that the IQ Merger Arbitrage ETF tracks also includes a short position in global stocks as a hedge.

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