Trend: The first short-only ETF (ticker HDGE) started trading on January 27, 2010.
AdvisorShares, the Bethesda, Md.-based ETF sponsor known for its actively managed strategies, today launched a short-only U.S. equities ETF that’s designed to capture alpha in “any market environment” by short-selling the market’s underperformers.
The Active Bear ETF (NYSEArca: HDGE), AdvisorShares’ first short-only fund, is meant as a hedging tool in a long/short strategy, according to company’s website. The ETF is designed to generate “positive relative risk-adjusted returns” by shorting companies in the U.S. large-cap equities universe that have low-quality earnings, or that use aggressive accounting to boost earnings in the short term.
“Investors told us that they are searching for a true hedging solution, with an experienced short manager,” AdvisorShares Chief Executive Officer Noah Hamman said in a press release. “Current products either blindly short every security, or use exposure to commodities as a synthetic hedge which we know often does not work.”
The security selection process behind HDGE, a bottom-up, fundamental, research-driven process that also looks for events that are catalysts for lower returns and relies on technical factors to achieve alpha as well, hopes to screen out what the company calls “fad products or broken business models.” Instead, the ETF will focus on companies facing operational deterioration, AdvisorShares said.
HDGE has a net expense ratio of 1.85 percent.
The portfolio, which should consist of anywhere from 20 to 50 short positions across various sectors, each representing 2 to 7 percent of the mix, includes Juniper Networks, Avon Products, the retailer Kohls and Bank of America among its top holdings.
HDGE is managed by portfolio managers John Del Vecchio and Brad Lamensdorf, both of Dallas-based Ranger Alternative Management. Ranger is a company known for its expertise in forensic accounting as a way to identify domestic equity stocks that are expected to underperform.
“HDGE is managed by a team with extensive specialized backgrounds in short selling securities that will employ a disciplined, repeatable methodology in analyzing factors such as firms’ accounting statements, management team, corporate governance and competitive advantage when looking for companies to include in the HDGE portfolio,” Ranger’s Del Vecchio said in the press release.