ETF Trade Advisor has decided to trade a Short ETF called Active Bear ETF (symbol: HDGE). The launch of this fund on our Member’s page is crucial as we are of the view that HDGE will be a strong performing fund during the next few months. We have been looking hard to find a pure short equity ETF and we feel confident about this choice.
This is an ETF of pure equity short positions which is actively managed and has an annualized expense ratio capped at 1.85%. The manager portfolio management team implements a bottom-up, fundamental, research-driven security-selection process. In selecting short positions, the Fund seeks to identify securities with low earning quality or with aggressive accounting which may be intended on the part of company management to mask operational deterioration and bolster the reported earnings per share over a short time period. In other words, this inverse ETF is the opposite of an actively managed fund where analysts exhaustively research the best opportunity. These traders instead look for the worst investments on Wall Street to take a short position.
The lead manager, John Del Vecchio, has an impressive track record. He is a forensic accountant by training, who worked to identify companies that were aggressive in their accounting while masking deterioration in their business. Here is the link for his interview with John Nyaradi.
The expense ratio is high compared to most exchange-traded funds, but is justified given the frequent trading activity of the fund managers and their expertise in picking through the companies that overstate their earnings. The manager makes specific equity selections and allocations rather than following an automated program which is a passive and inefficient manner of investing in our view.
Based on our observation of this fund, it should perform best when the highest-beta equities are in free-fall. Hence, allocating a small percentage of our portfolio to HDGE should reward us handsomely during market down-turns, especially when TLT is not at a favorable price.