Blackrock, Fidelity Challenge Hedgegrm with trend chaser betting

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(Bloomberg) Trend Chasing Hedge Gunds are confronted with a new competitor wave of the ETF world, since the asset managers open the latest regulations to open strategies for the masses that were once reserved for the financial elite.

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Blackrock, Investco and Fidelity have recently submitted to start so-called managed futures ETFs that use derivatives to surf dynamics over a variety of investment classes. By adapting these funds to the change in market conditions to their systematic models, these funds aim as a bulwark against back in traditional portfolios.

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The Hedge Funds, which are followed by similar strategies – known under their regulatory nickname “Commodity Trading Advisers” or CTAs – still control around 340 billion dollars.

The ETFs that have entered the fight are still tiny in comparison, but the 3.3 billion US dollars that they now manage are almost twice as high as a year ago, how data from Bloomberg were put together. The ETFs were supported by their lower fees and at least in 2024 their better performance, some due to their simpler investment style.

The SG CTA index, which follows 20 such hedge funds, rose by 2.4%in 2024. In the meantime, the average return of similar ETFs in the same period was around 7.3%.

“If other participants arrive, you will try to offer a more cost -effective offer,” said Mohit Bajaj, director of ETFs at Wallachbeth Capital. “If you can exceed the hedge funds, you will receive the assets.”

These new products represent the latest efforts to provide retail dealers access to corners of the asset management industry, which were previously limited to highly developed and wealthy investors. An ETF, which is partly invested in private debts, has recently celebrated its controversial debut, while a number of products that imitate private equity have flooded the market.

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These new ETFs are cheaper than the road products that they imitate, but they are still much more expensive than the passive stock index funds that have drawn most of the money from retail investors – and generally exceeded more active strategies.

But diversified hedging products were attractive for some retail dealers because they go hand in hand with a gloss of Wall Street Raffinesse. Many small investors are also concerned that shares have been overrated and that bonds may work again as a buffer, as happened during the 2022 bear market.

In the simplest form, CTA and Managed Futures strategies via futures contracts should become long and short assets long and short. From goods to currencies, stocks and bonds, the fund managers try to identify and surf trends wherever they appear in markets. The goal is to earn money regardless of the market environment, but the most critical when bonds and shares separate both.

If a hedge fund strategy is packed as an ETF, certain compromises come. Since you cannot restrict the inflows and have to be both transparent and liquid during the day, you usually decide to include a more limited market and do so slower than your hedge fund colleagues, says Adi Mackic, a customer portfolio manager at Man Ahl, the British company that in the 1980s in the 1980s in the trend chasing strategy operated.

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A Futures ETF managed by MAN will only act 26 markets compared to the hundreds used by the MAN CTA hedge fund.

Apart from men, almost all players in the ETF room are smaller managers who concentrate on this vehicle. Now the Giants are involved and have a good success story to disturb more expensive competitors with cheap new ETFs.

Blackrock, Fidelity and Investco refused to comment on the planned offers, citing the regulatory rest after the submissions.

While the ETFs are likely to target a retail audience, they could ultimately represent a broader challenge for CTAs and put their fees down. Hedge funds, which, according to Societe Generale from the SG CTA index fee, were pursued an average administrative fee of 1.3% and another 13.9% for the service. In contrast, the three largest ETFs with a similar investment approach have a cost rate of around 0.84%, as the data compiled by Bloomberg show.

Hedge Fund “tend to compete with more and more complexity, which increases their costs, does not improve their performance, but justifies their fees and possibly receives incremental assets,” said Andrew Beer and Senior Member of Dynamic Beta Investments, which operates the largest managed Futures ETF.

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The simplicity proved to be a winning formula in 2024. Some hedge funds focused on exotic markets that publish their worst year of all time after a strong run in the past decade. Among some of the largest actors in this subgenre, the MAN AHL Evolution and Systematica alternative markets lost around 6%, while Florin Court's capital decreased by 11%.

Mackic at Man Chals Chals Chals to Markt's circumstances, since the more exotic funds were whipped by chopped trends in certain markets on how energy. In the long term, more diversified CTAs should win, he emphasizes.

However, ETFs and performance problems are not the only threat to CTAs from hedge funds. Even in the institutional world, pensions and other allocators turn to cheaper swaps products that are exhibited by banks to imitate systematic strategies – a company that is generally known as quantitative investment strategies or QIS.

For Corey Hoffstein, Chief Investment Officer of newly discovered research, this is all just the latest chapter in the shifting of the trend, which in the early 2000s chasing a hedge fund strategy that can now be treated slightly cheap. His company started two ETFs that combine traditional assets such as stocks and bonds with CTA strategies.

“I am sure if you talked to someone who heads a hedge fund, you would say: 'An ETF cannot do what we do. We do unique and innovative things, ”he said. “Where the ETF comes, it says:” This is great, but not everyone has a million dollars. “

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