There are ways to make money in the stock market even when the stock prices fall. A short position in stocks as against a long position is what makes it possible. A long position in stocks means that an investor has purchased and owns shares of stock, while an investor with a short position is one who owes stock to another person but has not yet purchased it. AdvisorShares Ranger Equity Bear ETF (NYSE Arca: HDGE) aims to make money for investors through short sales of stocks.
Investors, who are bullish on the stock market, profit when stock prices rise over time. What if the bears are in control and investors want to profit even in a bear market? HDGE is one such ETF which is an actively managed fund that seeks positive returns by shorting US-listed companies that are thought to have low earnings quality or use aggressive accounting practices.
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Performance of HDGE ETF
The performance of HDGE ETF shows that the returns were positive during the period when the S&P 500 fell, however, when the markets were positive, the ETF declined in value. As of October 31, 2022, over the last 3 years, the S&P 500 was up by 10% on an annualized basis, while HDGE ETF declined by almost 23%. However, in 2022 so far, the GDGE ETF is up by 15% while S&P 500 is lower by over 18%. Coinbase Global, Citigroup, Robinhood Markets, and Zoom Video are some of the stocks shorted as per October’s portfolio.
The investment objective of the AdvisorShares Ranger Equity Bear ETF (NYSE Arca: HDGE) is capital appreciation through short sales of domestically traded equity securities. The portfolio manager of HDFE ETF implements a bottom-up, fundamental, research-driven security selection process.
In selecting short positions, the ETF seeks to identify securities with low earnings quality or 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 addition, the Portfolio Manager seeks to identify earnings-driven events that may act as a catalyst to the price decline of a security, such as downward earnings revisions or reduced forward guidance.
A word of caution here. A long bull market is a difficult environment for short-only strategies, and generating positive returns could be difficult. Such funds majorly work during bearish scenarios. The strategy of the fund also includes frequent buying and selling of securities, which may result in a high portfolio turnover and, as a result, a drag on returns.
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HDGE can be used as part of a long/short strategy in which an investor may synthetically integrate by pairing HDGE with a long-index ETF (or an investor’s portfolio of long positions), providing the investor with a “buy and hold” option to hedge their long domestically-traded equity exposure.
The Portfolio Manager utilizes accounting metrics across the income statement, cash flow statement, and balance sheet to identify companies with low earnings quality or possible aggressive accounting practices. These factors may suggest operational deterioration in a company’s business. Qualitative analysis is also considered as an assessment of the management team, accounting practices, corporate governance, and the company’s competitive advantage analyzed before a company is included as part of the HDGE portfolio.
The total Annual Operating Expenses of HDGE are 4.29%. The NAV of HDGE ETF as on December 16 was $28.58 and the fund had nearly $155 Million in Assets Under Management.