Replicating Popular Investment Strategies with Equities + Cash

Many strategies are just offering diluted equity exposure

July 2023. Reading Time: 10 Minutes. Author: Nicolas Rabener.


  • Most investment products offer straight or diluted exposure to the stock market
  • Even complex strategies often can be replicated via a combination of the S&P 500 and cash
  • However, this questions the utility of these strategies given a lack of diversification benefits


When ETFs were conceived in the 1990s, the primary goals were to reduce cost and simplify investing. If fund managers can’t beat their benchmarks, then allow investors to invest directly in benchmarks. Cheap and simple.

However, given the excellent survival skills of the asset management industry, there are now ETFs available for every conceivable strategy, sector, or geography. Somewhat ironically, there are more ETFs than stocks trading in the US equity market. Investing has become cheaper, but not simpler.

In our research efforts over the years, we have analyzed many different types of ETFs, and often found that even complex strategies simply provide diluted equity exposure. For example, long-short equity hedge funds, which have become available as ETFs, can often be simply replicated via allocating to the S&P 500 and cash (try this for any security on Finominal’s Time Machine).

In this research article, we will look under the hood of some popular ETFs that have gathered large amounts of assets under management.


We evaluate 10 ETFs that are typically viewed as alternative or diversifying strategies. Specifically, these are:

  • First Trust Long/Short Equity ETF (FTLS): $690m AUM, 1.36% management fee
  • IQ Merger Arbitrage ETF (MNA): $469m AUM, 0.77%
  • IQ Hedge Multi-Strategy Tracker ETF (QAI): $632m AUM, 0.79%
  • ProShares Hedge Replication ETF (HDG): $33m AUM, 0.95%
  • JPMorgan Equity Premium Income ETF (JEPI): $27,200m AUM, 0.35%
  • SPDR Blackstone Senior Loan ETF (SRLN): $4,440m AUM, 0.70%
  • Global X S&P 500 Covered Call ETF (XYLD): $2,800m AUM, 0.60%
  • iShares Preferred and Income Securities ETF (PFF): $12,850m AUM, 0.45%
  • iShares iBoxx $ High Yield Corporate Bond ETF (HYG): $15,150m AUM, 0