3 New Hedge Fund Replication ETFs Just Hit The Market

Benzinga recently had the chance to talk with Ethan Powell, Chief Product Strategist for Highland Capital Management, about Highland’s three brand new ETFs: The Highland HFR Global ETF HHFR, Highland HFR Event Driven ETF DRVN and Highland HFR Equity Hedge ETF HHDG, which replicate aggregate hedge fund positions.

Why Follow Hedge Funds?

Benzinga asked Powell why investors should consider buying Highland’s new hedge fund-replicating ETFs rather than a broad market ETF such as the SPDR S&P 500 ETF SPY, given that hedge funds have consistently underperformed the overall market recently.

Powell said that the appeal of Highland’s new hedge fund ETFs lies in the safety they provide for investors in an uncertain interest rate and equity market environment.

“What we are trying to do is provide some solutions to the investing public for their concerns over interest rate and stock market volatility,” Powell said.

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“Investors will want these ETFs in circumstances where you’ve got a lot of uncertainty in the market, and what we’re trying to do is provide some alternatives for investors who want to insulate themselves from market volatility and uncertainty.”

Hedge Fund Trends

When asked about trends Highland has observed in hedge fund buying lately, Powell mentioned one particular sector that has been a trendy buy lately.

“We see a lot of opportunistic buying in the energy sector. MLP’s are really hot right now. They got beaten down with the collapse in crude, and now there is a lot of buying within the hedge fund community,” Powell explained.

Market Outlook

With the launch of the three hedge fund replicating ETFs coming six years into a bull market that has driven the S&P 500 about a third higher than it’s ever been before, Powell was asked if Highland is particularly concerned right now that the bull market may be at or near its peak.

“Our view isn’t necessarily that we’re in store for a major correction, but if you look at how our portfolio is positioned, it’s certainly not positioned to assume a lot of beta exposure to risk assets,” Powell said.

Highland is currently expecting the market to trend mostly sideways for now with a high amount of volatility, and Powell emphasized the importance of stock selection and risk management in coming months.