Scalper1 News
Thanks to persistent weakness in China, worries over global repercussions have intensified. In fact, some are of the opinion that the China turmoil, plunging oil price and slowdown in key emerging markets will knock out chances of the Fed’s September lift-off and delay the rates hike to later this year or early next year. This uncertainty spooked the markets across the board in the last couple of weeks and sent many investors looking for alternatives as protection against a slump. While volatility ETNs like the iPath S&P 500 VIX Short-Term Futures ETN ( VXX) are definitely popular choices in this type of an environment, these can face significant problems over long-time periods when the futures curve isn’t favorable. Meanwhile, precious metals such gold have been highly volatile as a slew of upbeat U.S. economic data pushed the greenback higher and started weighing on commodities across the spectrum. On the other hand, the global risk-off trade situation has resulted in a flight to safety to gold. Additionally, the returns from the other traditional safe haven – Treasury bonds – are also unstable at present as any positive news flow about the U.S. economy is negative for Treasury bonds. As such, there are very few options left for investors to hedge their portfolios. Fortunately, there is one solid option – the AdvisorShares Ranger Equity Bear ETF (NYSEARCA: HDGE ) – which has been doing well lately. Is This A Better Hedge in Current Turmoil? This ETF has been on the market since 2011, a difficult period for bears. Though it has been beaten down since its inception, it has delivered stellar performances in recent months, especially after the volatility levels picked up. This is especially true as HDGE gained nearly 5.5% in the trailing one-month period compared to the loss of about 7.2% for the SPDR S&P 500 Trust ETF (NYSEARCA: SPY ) . From a year-to-date look, the bear ETF has delivered returns of about 2% against 5.8% decline for SPY. Additionally, it has outperformed other popular hedge plays like the SPDR Gold Trust ETF (NYSEARCA: GLD ) and the iShares 20+ Year Treasury Bond ETF (NYSEARCA: TLT ) over the past six months, suggesting that this could be a better play for investors seeking an inversely correlated choice in today’s market. Inside HDGE The ETF is actively managed and seeks capital appreciation by taking short positions in a number of U.S. listed companies. The securities selected for the fund are based on the philosophy from Ranger Alternative Management, which utilizes a bottom-up, fundamental, research driven security selection process. In particular, the managers of this active fund will look to go short in firms with low earnings quality or aggressive accounting practices, as this might be a sign that the firms are attempting to hide deteriorating operations or are looking to boost EPS over the short term. Additionally, the managers will look to identify earnings-driven events that could be a catalyst for price declines such as downward earnings revisions or reduced forward guidance – the two factors that can signal trouble for a company. The fund has amassed $143.7 million in its asset base while trades in good volume of around 151,000 shares a day on average. However, it is a bit pricey when compared to other hedging products. Management fees come in at 1.5%, while a number of other costs like short interest expense, other expense, and acquired fund fees result in a net expense ratio of 2.92%. Bottom Line HDGE is a pretty innovative product that looks to give investors short exposure to the U.S. equity market. The focus on companies with weak earnings suggests that it is zeroing in on firms that are probably the most susceptible to sluggish market conditions, and thus could fall in bear markets or when the bull loses steam. So for investors ready to bear a higher expense ratio, this fund seems to be a great choice when markets are stumbling. Moreover, it appears to be a more direct hedge than the volatility, gold or Treasuries. Link to the original post on Zacks.com Scalper1 News
Scalper1 News