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Much talked about ETF on ASX: ETFS Ultra Long Nasdaq 100 Hedge Fund

  • July 13, 2020 09:27 PM AEST
  • Hina Chowdhary
    Director, Equities Research Hina Chowdhary
    1466 Posts

    Hina Chowdhary is the Director, Equity Research at Kalkine and has an extensive experience of about 15 years in the area of Research, which includes 5+ years in Equities Research particularly.She has earned a Master of Science degree from the renowne...

Much talked about ETF on ASX: ETFS Ultra Long Nasdaq 100 Hedge Fund


  • ETFs are a pool of investment that provides exposure to an area of the market. The portfolio comprises of equity and bonds, and trades close to its NAV (net asset value).
  • ETFS Ultra Long Nasdaq 100 Hedge Fund (LNAS) and ETFS Ultra Short Nasdaq 100 Hedge Fund (SNAS) were launched on 13 July and have been catching investors’ attention amid COVID-19 volatility.
  • LNAS is an exchange-traded fund that provides investors, with geared positive returns related to Nasdaq-100 returns with leverage levels between 200%-275% of NAV (handled by firm).
  • Such short and leveraged products are becoming attractive for investors at the time of increased market volatility.
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An exchange-traded fund (ETF) is akin to index mutual funds, but they trade like stocks. ETF involves a collection of securities such as stocks, commodities, and bonds, which track an index. Also, they can invest in unlimited industry sectors or utilise different methods.

ETFs can be worth considering for investors interested in shares or similar assets but want a low cost and low-risk product, which would give slightly lesser but steady returns than a few other products. They provide lower average costs as it would be quite costly for investors to purchase all stocks that are kept in an ETF portfolio independently.

ETFs are considered to be a popular choice for diversification. They enable investors to gain broad exposure to stock markets of different countries, and certain sectors with ease. Further, innovative ETF structures permit investors to short markets, obtain leverage and avert short-term capital gains taxes. Investors can invest their assets in a traditional style utilising the stock index, and bond ETFs and modify allotment in line with alterations in risk acceptance and objectives.

NASDAQ has been outperforming since June

After stumbling down in mid-March to the low of 6860.67 points, the NASDAQ Composite has recently rallied higher with robust gains. The index was in the spotlight and grabbed attention in June when it topped 10,000 for the first time.

It started at 9,460 at the beginning of June, and after hitting a low of 9,400 in mid-June, NASDAQ Composite started to rally and hit an intraday high of 10,221.85, closing at 10,131.37 on 23 June. The index ended with 3 consecutive highs last week to be at 10,617.44 points, up by 0.66% from its last close, as on 10 July.

ALSO READ: Revealed! Four Strong Companies From The Biggest Economies Amid COVID-19

The index has been showing resistance and must be watched closely. If the risk-taking sentiment persists in July, NASDAQ would be expected to experiment with new highs. Investors have put their bets on the US earnings season and are all set to witness most entities beat their projections even though anticipations have been reduced due to COVID-19 induced lockdowns.

Ray Attril, FX Strategy Head at National Australia Bank Limited (ASX:NAB) stated that the current bleak US coronavirus infection news persisted to be ignored in favour of constant confidence on the timeline for the discovery and quick unveiling of an useful vaccine and more policy backing for asset prices and the US economy.

There is a possibility of the index to shrink rapidly if risk sentiment takes a hit, and there is a rise in volatility. The tech-heavy index (S&P 500 Information Technology Sector) has risen18% in 2020, ignoring the surge in coronavirus cases in Florida and Texas. Shares of Amazon, Netflix, Tesla and tech giants like Apple and Microsoft have been soaring, which have been the primary drivers of the stock market.

There is a belief that NASDAQ listed entities majorly involves technology and software sectors, the opinion helps to produce a lot of positive emotion even if it is not entirely true. There is also a perception that equities listed on NASDAQ can survive the worldwide economic contraction better than others.

Hence, tech stocks have been drawing and gaining investors’ interest.

Australians can get exposure through ETFs Ultra Long Fund

ETFs have gained popularity amongst many Australian investors over the last decade.

ETF Securities have recently launched new ETFs based on the NASDAQ 100, which gives leveraged long exposure and another one with short exposure. ETFS Ultra Long Nasdaq 100 Hedge Fund and ETFS Ultra Short Nasdaq 100 Hedge Fund were launched on 13 July, catching investors’ attention amid COVID-19 volatility.

NASDAQ-100 is one of the largest large-cap growth indices in the world, which includes the largest 100 domestic and international non-financial companies that are listed on NASDAQ, based on their market capitalisation. It is home to the world’s most innovative companies like Apple, Google, Tesla, etc., with tech groups accounting for more than 50% of the index’s weight.

ETFS Ultra Long Nasdaq 100 Hedge Fund (LNAS) is a trading product that offers positive geared exposure to NASDAQ-100 index. The level of leverage in LNAS is amid 200-275% of the NAV (net asset value). It implies that for every 1% investment in NASDAQ-100, investment in LNAS is likely to return between 2-2.75% contingent on the degree of leverage implemented by the fund manager in that time period.

Further, LNAS is currency hedged, implying that the fund manager will have an objective of lowering, but not eliminating exposure to movements in the AUD/USD exchange rate.

LNAS gained exposure to NASDAQ-100 using derivatives as it invests mainly in a portfolio of long E-mini Nasdaq 100 futures contracts listed on CME (Chicago Mercantile Exchange). As NASDAQ-100 fluctuates, the amount of gearing in the fund changes and the fund manager rebalances the exposure to make sure that it stays in the target range.

Further, LNAS is liquid, as well as transparent, and considered to be a high belief trading tool for short term market exposure to the NASDAQ-100 index. It is a simple to use tool with no difficulties of direct related to derivative investments and has an ability to amplify returns.



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