Dresdner Kleinwort Wasserstein is offering UK retail investors a new way into hedge funds by launching the country’s first certificates tracking a hedge fund index. These certificates will track the HFRX Global Index, HFR’s investable index, and can be traded on the London Stock Exchange. DrKW believes that they offer retail investors an efficient and accessible way into hedge fund performance at a lower cost and for smaller amounts. “We offer daily liquidity and T+3 settlement so the trackers can be traded like equities,” says Shahzad Sadique, UK head of covered warrants at DrKW.
The minimum trade size is one certificate, which currently costs about £6. But Sadique says: “Given brokerage costs, the maths works out that investors will potentially begin to see returns after an investment of circa £600. In fact the average investor typically invests about £3,000.”
The management costs seem reasonable as well. The bank’s replication fee (its charge for replicating the index), is 2% of the index value, calculated daily. For example, if an investor had bought a certificate on October 27 when the HFRX Global Index was at about $1,000 he would have been charged a management fee of about five US cents that day. If the index maintains that level for a year it will cost about $20 in management fees for the year.
The tracker certificates are part of DrKW’s covered warrants series, which it launched in February. Sadique says the addition of hedge funds to the series is a natural progression. “We started with the basics such as equities and fixed income. [In September] we added currencies and commodities. Our overall aim is to offer a diverse product range.”
DrKW launched similar certificates on the Swiss Exchange in collaboration with Union Bancaire Privée in July. These track a broader range of HFR’s indices. In addition to the Global Index, they offer certificates that track the eight HFRX sub-strategy indices. Sadique believes the HFRX Global Index is a good starting point for retail investors as it offers a mix of strategies. “Depending on how well this goes we may look at other indices,” he says.
HFR launched its investable indices last year and has formed partnerships with several financial institutions to create products based on them.
