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Long-short ETF funds offer investors new ways to hedge in lockdown economy, say fund managers

Economic uncertainty and weak market conditions are fuelling a rising interest in long-short exchange-traded funds (ETFs). Buyers are looking towards long-short ETF funds to hedge their bets and gain the exposure they may not get in a traditionally structured portfolio.

After a number of companies announced worse-than-expected first-quarter earnings, investors are looking for viable alternatives to stocks. ETF funds, which leverage short-selling — borrowing shares of a stock in order to bet against it for profit — are thus proving to be a good way to rebalance portfolios.

Noah Hamman (pictured), founder and chief executive of AdvisorShares, has confirmed the rising demand for such products. Both of the long-short ETF funds he manages are seeing a lot of activity: the AdvisorShares Ranger Equity Bear ETF (HDGE) and the AdvisorShares Dorsey Wright Short ETF (DWSH).

HDGE, up 3.5% year to date, has holdings in Credit Acceptance, Align Technology, HSBC, AT&T and Hilton Grand Vacations, among others.

ADVISORSHARES TRUST RANGER EQUITY BEAR long-shortETF

The main differentiator of long-short ETF funds is the “constant adjustments”. These are made to manage exposure and take advantage of market momentum, especially on more volatile days. Traditional funds gravitate towards companies that have increased earnings. However, these ETFs holdings favour companies with more fundamentally driven weakness to try to find the right opportunity to short.

AdvisorShares’ other alternative fund, DWSH, is up more than 6% year to date. It focuses on shorting the stocks of large-cap companies exhibiting low relative strength. Its top five holdings are Nu Skin Enterprises, Marathon Oil, Core Laboratories, Patterson-UTI Energy and Cimarex Energy.

ADVISORSHARES TRUST DORSEY WRIGHT SHORT ETF

The fundamental approach of long-short ETF funds seems to be outperforming the broader market. Combined in a portfolio, the selected companies present a smarter way to hedge some long positions and really diversify.

If you are looking for ways to build your portfolio, we offer educational and actionable advice on how to short stocks. You can open an account with an ETF brokers and invest in low-cost ETFs

All trading carries risk. Views expressed are those of the writers only. Past performance is no guarantee of future results. The opinions expressed in this Site do not constitute investment advice and independent financial advice should be sought where appropriate. This website is free for you to use but we may receive commission from the companies we feature on this site.
Galina Mikova

Galina is a Hubspot-certified Technical Writer with over 10 years of experience in working with Fortune 500, private investment, banking, FOREX and niche tech companies as well as crypto and blockchain startups. She has a solid background in FinTech and blockchain technology.

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