Market Overview

IndexIQ Top Trends and Insights for 2019

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A new ETF Rule from the SEC, continued inflows into alternative
strategies and a robust M&A market will all be among the key trends to
emerge in the New Year, according to ETF pioneer IndexIQ

Looking ahead to 2019, the team at IndexIQ
has shared a shortlist of the key trends and themes to watch in the New
Year:

 

1.

2019 will bring a more level playing field to the ETF industry
and innovative fixed income approaches may follow

Expectation: Next year will likely bring the implementation
of the SEC's long-awaited ETF Rule, which is designed to lower
some of the barriers to entry for new issuers and new products.
While much of the "white space" in the equity ETF realm has
already been filled, fixed income remains an area ripe for
innovation and some provisions of the rule, such as more
allowances for the use of "custom baskets" could open the door for
new types of fixed income ETF approaches to brought to market
which would not have been feasible under the old approach. We've
been adding to our fixed income ETF suite in recent years and will
continue to put a great deal of emphasis into researching new and
useful strategies that could be of use to investors through the
ETF wrapper.

 

2.

Inflows into alternative strategies will continue

Expectation: Q4 has so far seen an increase of inflows into
alternative ETF strategies and we expect this trend to accelerate
in 2019 as investors look for ways to mitigate some of the
volatility that has been a major component of the 2018 market
story while also keeping some of the gains they've accumulated
across their portfolios in recent years. As the firm that
pioneered the liquid alternatives category, we've seen this space
grow and mature since we brought out our first alternative ETF
(QAI) almost a decade ago.

 

3.

Merger activity, though off its highs from a few years ago,
will continue to be strong

Expectation: As mentioned above, in 2018 investors have
clearly taken notice of what a merger arbitrage strategy can bring
to their respective portfolios. While 2018 saw a continued
deceleration in merger activity, a trend we expect to see continue
in 2019, deal volume relative to historical levels is still very
strong and deal completion rates remain strong as well. Our
research has also shown that historically merger arbitrgage
returns tend to be positively correlated to short-term interest
rates, something that could be very compelling to investors in the
current climate.

 

4.

Value may finally reclaim the lead over growth but investors
may be well-served by a diversified, multi-factor approaches

Expectation: For the first two months of Q4 2018, we've
seen growth and value effectively flip positions with regard to
how each is performing among all of the major factors. Froth in
the "FAANG" stocks has dissipated and tech sector momentum appears
to have broken. Is this enough to call for a value rebound after
value approaches have spent several years in the doldrums? Very
possible. We think we'll see a return to the historic pattern of
relative performance characteristics of the various factors in
2019, further making the case for investment approaches that take
a diversified, multi-factor view of the markets.

 

5.

Navigating the fixed income market will require a more dynamic
approach as we keep an eye on 3 things to watch for in Fixed Income

 
     

a.

 

Does the Fed tighten 1, 2 or 3 times in 2019? With 1 more interest
rate increase virtually certain in late 2018, all eyes are on Fed
Chair Powell to see how they wind down the interest rate
normalization cycle. If they continue with 2-3 moves in the Fed
Funds rate, the economy may show signs of weakness, especially as
the impact of fiscal stimulus (i.e. tax cuts) is showing signs of
wearing off.

b.

Do credit spreads widen out again due to lower oil prices or late
cycle concerns? With oil moving sharply lower in late 2018, we saw a
concurrent increase in credit spreads, negatively impacting high
yield bond prices If oil prices stay low on increased supply from
Russia and Saudi Arabia, will credit spreads further widen? Or if
the Fed is too aggressive with interest rate normalization, will
credit spreads expand?
c. Will there be large downgrades of BBB investment grade corporate
bonds into BB or lower junk bonds? The BBB investment grade bond
universe is currently ~$2.7T vs ~$1.2T for the entire high yield
bond universe. If we see a large shift in bonds from BBB to BB or
lower, there could be implications for passive high yield funds.
 

IndexIQ's senior leaders, including CIO Sal Bruno, blog frequently about
major themes and trends shaping the investment landscape, and will
continue to share their thinking and updates to previous topics here: IndexIQ's
blog
.

About IndexIQ

IndexIQ, a New York Life Investments company, is a global provider of
exchange-traded funds (ETFs), with a decade of offering highly
differentiated and innovative long-term solutions to retail and
institutional investors. Today, with assets under management of $4.1
billion, IndexIQ leverages the first-class asset management capabilities
of New York Life Investments' multi-boutique platform into its suite of
offerings which include: fixed income, equities, alternatives and
specialty asset classes.

For additional information on IndexIQ, visit IQetfs.com
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About Risk

Past performance is no guarantee of future results, which will vary.

All investments are subject to market risk and will fluctuate in value.
Liquid alternatives are alternative investment strategies that are
available through vehicles that provide daily liquidity, such as mutual
funds and ETFs. Alternative investments are speculative, entail
substantial risk, and are not suitable for all clients. Alternative
investments are intended for experienced and sophisticated investors who
are willing to bear the high economic risks of the investment.
Investments in absolute-return strategies are not intended to outperform
stocks and bonds during strong market rallies. Hedge funds and hedge
fund of funds can be highly volatile, carry substantial fees, and
involve complex tax structures. Investments in these types of funds
involve a high degree of risk, including loss of entire capital.
Investments in derivatives often involve leverage, which may increase
the volatility of the investment and may result in a loss.

This material represents an assessment of the market environment as at a
specific date; is subject to change; and is not intended to be a
forecast of future events or a guarantee of future results. This
information should not be relied upon by the reader as research or
investment advice regarding the funds or any issuer or security in
particular.

The strategies discussed are strictly for illustrative and educational
purposes and are not a recommendation, offer or solicitation to buy or
sell any securities or to adopt any investment strategy. There is no
guarantee that any strategies discussed will be effective.

This material contains general information only and does not take into
account an individual's financial circumstances. This information should
not be relied upon as a primary basis for an investment decision.
Rather, an assessment should be made as to whether the information is
appropriate in individual circumstances and consideration should be
given to talking to a financial advisor before making an investment
decision.

Credit Ratings: AAA credit ratings apply to the underlying debt
securities and are rated by an independent rating agency, such as
Standard & Poor's (S&P), Moody's, and/or Fitch. S&P rates borrowers on a
scale from AAA to D. AAA through BBB represent investment grade, while
BB through D represent non-investment grade. Moody's rates borrowers on
a scale from Aaa through C. Aaa through Baa3 represent investment grade,
while Ba1 through C represent non-investment grade. Fitch rates
borrowers on a scale from AAA through D. AAA through BBB represent
investment grade, while BB through D represent non-investment grade.

Consider the Funds' investment objectives, risks, charges and
expenses carefully before investing. The prospectus and the statement of
additional information include this and other relevant information about
the Funds and are available by visiting 
IQetfs.com or
calling (888) 474-7725. Read the prospectus carefully before investing.

New York Life Investments is a service mark and name under which New
York Life Investment Management LLC does business. New York Life
Investments, an indirect subsidiary of New York Life Insurance Company,
located at 51 Madison Avenue, New York, New York 10010, provides
investment advisory products and services. IndexIQ® is an
indirect wholly owned subsidiary of New York Life Investment Management
Holdings LLC and serves as the advisor to the IndexIQ ETFs. ALPS
Distributors, Inc. (ALPS) is the principal underwriter of the ETFs.
NYLIFE Distributors LLC is a distributor of the ETFs. NYLIFE
Distributors LLC is located at 30 Hudson Street, Jersey City, NJ 07302.
ALPS Distributors, Inc. is not affiliated with NYLIFE Distributors LLC.
NYLIFE Distributors LLC is a Member FINRA/SIPC.

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