RALS screens 1,000 stocks on such fundamentals as cash flow and dividends. It goes long on the top 20 percent of that list and shorts the bottom 20 percent. It is equal parts long and short, which lessens volatility. In the past month, RALS benefited more from its short bets than from its long bets.
The QuantShares US Market Neutral Anti-Beta Fund (BTAL), which also takes an offsetting short position in the stock market, was up 1 percent as well.
Loser: broad-based commodity ETFs
No alternative ETF fell more than the stock market, but many were down nonetheless and probably disappointed investors. For example, broad-based commodity ETFs, which are bought as portfolio diversifiers, didn’t deliver much. The $2.5 billion PowerShares DB Commodity Index Tracking Fund (DBC) was down 1 percent. And the $830 million PowerShares DB Agriculture Fund (DBA) was down nearly 3 percent in the past month.
Loser: multi- strategy ETFs
One of the biggest letdowns came from one of the most popular hedge fund replication ETFs, the $1 billion IQ Hedge Multi-Strategy Tracker ETF (QAI). It was down nearly 2 percent.
QAI, one of the most complex ETFs, attempts to replicate the return characteristics for six hedge fund strategies. A mathematical model analyzes hedge fund performance patterns to identify asset classes being used by hedge funds. The ETF then invests in liquid proxie––broad-based ETFs––for those asset classes to try to get similar performance. QAI was hurt by its heavy weightings in high-yield debt and emerging-market ETFs.
Perhaps QAI shouldn't be categorized as an alternative ETF at all. It has an 80 percent correlation with the movements of the S&P 500. This is in contrast to the near-zero correlation with the stock market of GLD, RALS, and BTAL. Correlation is an underrated metric. It can help investors figure out which ETFs are truly alternative.