Private investors are being offered an easier way to gain exposure to hedge funds without the difficulties in buying – and the fears of being locked in – that have, until now, put off many from entering this sector.

Deutsche Bank last week launched an exchange traded fund (ETF) that tracks the bank’s proprietary hedge fund index, offering investors a chance to gain exposure to a range of hedge fund strategies – from credit and convertible arbitrage to macro and event-driven.

And, like all ETFs, the product offers intraday liquidity, even though the underlying hedge funds offer only weekly or monthly dealing. The index tracks the performance of Deutsche Bank’s own managed accounts platform, which currently contains about 40 funds.

Listed in Frankfurt, the ETF may be introduced on other European exchanges before the end of the year. Its management fee is 0.9 per cent per year.

“For investors wanting access to hedge fund returns, this ETF offers transparency as well as intraday liquidity compared with at best monthly or even quarterly liquidity for a traditional hedge fund investment,” says Stephane Farouze, head of the hedge fund derivatives group at Deutsche Bank.

A number of advisers welcome the liquidity the investment provides, especially now that listed hedge fund vehicles are trading at wide discounts to their net asset value and being forced to sell assets to fund redemptions.

But some still warn against buying in. Their view is that the success of a hedge fund hinges on the ability of its manager – and that tracking too wide a range of funds will hamper returns.

“I think it’s positive that you’re getting more liquid access to hedge fund strategies,” says Mick Gilligan, head of research at Killik & Co. “But the appeal of hedge funds for private investors these days is the chance to gain access to strategies that are not correlated to the equity markets.”

Nizam Hamid, head of sales strategy at iShares Europe, an ETF provider, is sceptical about the strength of the funds to be included in the index. He also believes that tracking an independent index is preferable to following one set up by a bank.

“Many of the better-performing funds do not necessarily offer access via broker-based platforms,” he says. “This means that the hedge fund indices that offer liquidity may only be able to represent smaller funds that have a need to be present on a platform that can help them gather assets.”

“It will be interesting to see whether investors are willing to accept hedge fund indices from investment banks where the investment banks provide a wide range of services to the funds included in the index or whether investors would prefer a greater degree of independence in the provision of such indices.”

Performances of most hedge fund strategies have been poor since the start of the year. However, while most have reported losses, they have still managed to outperform both the FTSE 100, which is down almost 16 per cent since January 1, and the S&P 500, which has fallen by more than 16 per cent.

Widening spreads in the credit markets have, in particular, hurt hedge funds that invest in distressed debt as lower-quality credit is becoming cheaper.

“Hedge fund managers, like other investors, are nervous about the efficacy and unpredictability of government involvement in the economy,” says Nadia Papagiannis, a hedge fund analyst with Morningstar, the fund tracker. “They just don’t know what the US government will do next, and this uncertainty is wreaking havoc in the markets.”

One strategy having some success is convertible arbitrage, which involves buying companies’ convertible bonds while shorting their stock. Last month, convertible arbitrage funds reported a gain of 1.76 per cent – their third monthly positive showing.

News of the ETF launch coincides with Lord Turner’s recommendation that hedge funds should be regulated like banks if they “evolve” to become important to the financial system.

This week, the head of the Financial Services Authority said watchdogs should be able to apply similar capital requirements to hedge funds as they do to banks. Lord Turner gave no details of how big a hedge fund had to be before bank capital and liquidity requirements need to be applied but he said: “hedge funds in general are not today bank-like in their activities”. So far, Germany and France called for the G20 to agree to more regulation of hedge funds, while the UK and the US authorities have been relatively quiet.