AdvisorShares is gaining some momentum in the Active ETF space with the launch of its second product, the Mars Hill Global Relative Value ETF (GRV: 25.15 0.00%) on July 9th, and now a filing for a new actively-managed ETF called the Active Bear ETF (HDGE). This brings the number of ETFs that AdvisorShares has under filing with the SEC to six. The depth of AdvisorShares’ pipeline should definitely help it increase its presence within the US Active ETF landscape, which for most of 2010, was limited to the one product they had on the market – Dent Tactical ETF (DENT).
Noah Hamman, CEO of AdvisorShares, has also made clear that his firm intends to bring strategies to investors that are different from the norm and offer a unique investment option and value proposition. That strategy has certainly been evident from AdvisorShares’ planned product line-up, which ranges from a high yield bond fund, to an ADR-focused investment strategy and now a short-only fund.
The Active Bear ETF will select a portfolio of securities on a short-basis only by looking to indentify securities with low earnings quality or aggressive accounting methodologies intended to hide poor fundamentals. It’ll also search for downward earnings revisions and reduced guidance in identify earnings driven events that could contribute to a stock price decrease. The fund will normally invest in 20-50 short securities, each of which can comprise 2%-7% of the portfolio. HDGE will be sub-advised by Dallas based Ranger Alternative Management which was established in 2008. The lead portfolio manager on the fund, John Del Vecchio, previously managed segregated short-only portfolios. The preliminary prospectus reflects the historical performance constructed together to show returns from Oct 1, 2007 till Mar 31, 2010. The “Ranger Short Only Portfolio” has returned 16.55% since Oct 1, 2007, compared to the S&P500 Index which is down 8.01%. On an yearly basis, as you would expect, in 2008 when the market crashed, the short portfolio returned 94.85% while the S&P500 was down 37%, but in 2009 when the market rallied, the portfolio returned -28.99% when the S&P500 was up 26.46%. The expenses of the Active Bear ETF were not yet disclosed.
The Active Bear ETF will likely be an investment strategy suitable for investors that want to make a clear directional bet on the market. In the market environment of the last 2 years, the direction of individual equity securities has been dictated much more by the general market than by security specific factors. This was evident from the historical performance included in the prospectus where the fund did very poorly in 2009 when the market had a steady upward trend since March. If the market is going up strongly, then shorting the companies that you expect are poor fundamentally would still be akin to swimming upstream in very fast flowing river. Having said that, given the current market concerns regarding global debt levels and the precarious nature of the recovery, the introduction of the Active Bear ETF could be very well-timed indeed.
Disclosure: No positions in above-mentioned names.
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