While scouring the markets looking for great ways to participate in the current slide in the equity indexes, I discovered a real gem. The Advisor Shares Active Bear ETF (HDGE) offers a rifle shot at the true garbage in the market, low dividend companies with deteriorating fundamentals. Run by former Bass Brothers associate Brad Lehmansdorf, it includes such well known losers as Goodyear (GT), Green Mountain Coffee (GMCR), and Open Table (OPEN). Think of it as garbage distilled.
The fund addresses many of the shortcomings in other short index ETF’s like (SH) and the 2X (SDS).While they get the direction right in a down market, they also throw out the baby with the bathwater. Sure, you are happy to sell short a lot of stocks with bleak futures. But you are also shorting Apple (AAPL), IBM (IBM), Intel, and Cisco (CSCO), not something you necessarily ever want to do on pain of death.
It has been working like a charm since the April 2 peak in the markets. (HDGE) delivered an awesome +15.2% gain, against a much more modest +6.6% for the 1X ProShares Short S&P 500 fund (SH) and a fall of only -5.8% in the S&P 500 (SPX). (HDGE) is in effect delivering a downside outperformance compared to the (SH) of more than 2:1, which makes a long (HDGE)/short (SH) strategy look kind of interesting. What is particularly impressive is that it does this without leverage, qualifying it for investment in many plain vanilla IRA’s and 401k’s, and posting it on the menu for many individual investment advisors.
Of course, quality comes at a price, as I am always at pains to point out to my own readers. Management fees are a hefty 3.39%, although that comes down to a reasonable 1.5% when manager rebates are factored in. The dealing spreads on these esoteric ETF’s can be quite wide, so it is wise to place a limit day order in the middle market to avoid being taken to the cleaners. If we get a brief short covering rally in the market you might find me in this one with a trade alert. To learn more about this enticing exchange traded fund, please visit their website at http://advisorshares.com/ .
Looking for Some Good Short Plays