The downturn in equity markets has made 2022 a lucrative year for short sellers. A report from investment data firm S3 Partners revealed that short-sellers had raked in an astonishing $215.6 billion year-to-date in market-to-market profits through the second quarter. In times like this, a short position can reward handsomely. However, for many everyday investors, the risks associated with selling stocks are too steep to justify. While a stock can only fall to zero, it can climb infinitely, making the risk of loss on a short sale theoretically unlimited.
Today we’re featuring a unique approach to short-selling that allows investors to take a position inverse to a curated selection of large and mid-cap stocks. This approach appeals to many bearish investors looking to reap the benefits of a position opposite potential losers but looking to mitigate some of the risks by employing a time-tested team of pros to do the picking and choosing.
The AdvisorShares Ranger Equity Bear ETF (HDGE) is unlike most products offering short exposure to domestic and international equity markets as it is an actively-managed fund that seeks to identify candidates for short selling based on forensic accounting and other quant-based methodologies.
The fund makes the most of bad situations, posting positive returns as stocks weaken. As an actively managed portfolio of individual components (versus a fund that’s inversely correlated to the market), HDGE offers the unique benefit of a time cushion in the event of a slow recovery, unlike a bear market or inverse fund, where a market recovery would likely lead to an immediate loss in value.
The managers behind this fund have an impressive track record, and the fund has a wide variety of potential applications depending on an investor’s outlook for the U.S. market. The primary downside of this ETF is the hefty 5.2% expense ratio. The fund’s strategy also involves frequent buying and selling of securities, which may lead to a high portfolio turnover and, consequently, may create a drag on returns. Overall, HDGE enjoys a solid asset base and can be used as an alternative for ‘vanilla’ inverse equity funds. Its unique approach provides a solution for bearish investors who aren’t 100% focused on watching the market.
