STAMFORD – Hedgeye Asset Management has launched the Hedgeye Index Adds ETF, which is designed to provide investors with differentiated exposure to a market inefficiency rooted in index reconstitution.
The exchange-traded fund seeks long-term capital appreciation by systematically positioning ahead of expected forced buying from index funds when new constituents are added to major U.S. equity indices.
“ADDS reflects exactly what we’re building at Hedgeye Asset Management: strategies that are disciplined, differentiated and rooted in repeatable process,” said Keith McCullough, founder and CEO of Hedgeye Asset Management. “This is not another generic equity product. It is a focused strategy designed to pursue a specific source of return that many investors either overlook or cannot access systematically.”
When companies are added to widely followed benchmarks such as the S&P 500, S&P 400, S&P 600 and Nasdaq 100, index funds and other benchmark-tracking vehicles are often required to purchase shares of those companies. ADDS seeks to identify these potential additions before they occur, then exit positions at the market-on-close on the day a company is added to its target index. With that said, the strategy of a hedge fund is to short stocks.
The fund is managed by Hedgeye Asset Management portfolio manager Brooks Cutright, whose 19-year career in index-event trading includes buy-side portfolio management roles at DRW and ExodusPoint, head of ETF Trading, Americas, at Deutsche Bank plus risk portfolio trader at Bank of America Merrill Lynch.
ADDS uses proprietary machine learning models to generate forecasts of companies likely to be added to the indices it tracks. The portfolio typically holds approximately 40 U.S. equities that either currently meet, or are expected to soon meet, the eligibility requirements of major U.S. equity indices.
By rule, ADDS never holds a current S&P 500 constituent. The Fund also maintains a 20% per-name cap, follows a monthly rebalance cycle and applies a disciplined liquidity profile.
“The opportunity we are targeting is simple to understand but difficult to execute well,” Cutright said. “Index additions can create meaningful demand from passive vehicles. Our goal is to anticipate those events with discipline, size positions responsibly and exit when the flow catalyst is realized.”
ADDS is designed to serve as a complement to a core equity allocation by pursuing a source of return rooted in flow timing rather than traditional security selection. The strategy reflects Hedgeye Asset Management’s broader commitment to building actively managed investment solutions that combine research, process and risk management.
“We believe investors deserve access to strategies that are both intuitive and rigorously executed,” McCullough added. “ADDS is built to do one thing, do it systematically and do it with the level of risk discipline investors should expect from Hedgeye.”
