Source launches hedge fund ETF

Source has listed an ETF replicating the global performance of hedge funds on the Deutsche Boerse.

The fund tracks the Merrill Lynch Factor Model strategy, designed to generate performance similar to funds-of-funds, but without investing directly in hedge funds.

The model, created by Bank of America Merrill Lynch, uses a portfolio of six liquid market indices to replicate hedge fund returns globally.

Source says although the performance potential of hedge funds is attractive, there are still investment hindrances including lack of liquidity, lower transparency and single manager risk.

The BofAML Hedge Fund Factor Source Euro ETF provides liquid, broad exposure to hedge funds, at a low-cost with a total expense ratio of 0.70%. The Ucits III-compliant ETF is traded in euros.

The firm launched another version of the fund, the BofAML Hedge Fund Factor Source Dollar ETF, on the London Stock Exchange in early August. The fund has the same total expense ratio, although it is traded in US dollars.

Source CEO Ted Hood says: "Some investors love the idea of hedge fund exposure but find the potential illiquidity problematic. The new Source ETFs aim to provide broad, generic exposure to the hedge fund industry, without investing in individual hedge funds.

These ETFs could be particularly interesting as part of a core-satellite approach, in combination with some top class individual managers, or as a liquid cash management solution for funds-of-funds."

The Merrill Lynch Factor Model has over four years of live track record, and has generated returns historically comparable to the HFRI Fund Weighted Composite index, an established benchmark for the hedge fund industry.

The latest launch boosts Source's product range to 79 ETFs and ETCs, spanning equities and commodities. The firm has over $6.5bn in assets.