The Long And Short Of A New ETF
In what might be the antithesis of the passive, index-based wave that has propelled the rapid growth of exchange-traded funds, the Active Alts Contrarian ETF (SQZZ) is an actively managed product that takes long positions in heavily shorted stocks.
The fund relies on a proprietary investment process that identifies equities believed to have a higher potential for capital appreciation resulting from a short squeeze. Short selling aims to profit from falling share prices. A heavily shorted stock can be hit by a short squeeze when unexpectedly good news—such as a surprisingly strong earnings report—causes the share price to rise and sends short sellers scrambling to cover their bets, often at a loss, which further drives share price appreciation.
The SQZZ fund’s investment process was developed by Active Alts, a Westport, Conn.-based registered investment advisor focused on bringing liquid alternative strategies to the ETF space. The company says SQZZ can potentially benefit investors two ways. In one instance, it invests in companies with good fundamentals that have been shorted. These shorts can be squeezed, and the companies can benefit from capital appreciation. In the second instance, the fund can benefit from lending out hard-to-borrow securities that produce income through a dividend that could boost total returns.
SQZZ has a net expense ratio of 1.95%, which portfolio manager Brad Lamensdorf says is commensurate with the type of active management that the fund requires. And he notes it’s cheaper than liquid alternatives in the mutual fund world, and much cheaper than alternative hedge fund strategies.
First Marijuana ETF Lights Up
One of North America’s fastest-growing industries finally got its first exchange-traded fund when the Horizons Medical Marijuana Life Sciences ETF (HMMJ) began trading on the Toronto Stock Exchange in early April (the fund’s coming out announcement was in late March).
HMMJ, the first product of its kind, offers direct exposure to North American-listed stocks from companies engaged in medical marijuana bioengineering and production. The fund tracks the North American Medical Marijuana Index, composed of companies with significant business activity in the marijuana industry.
The market-cap-weighted fund will carry an expense ratio of 0.75%. U.S. investors can buy the fund through brokerages able to purchase Canadian securities.
ETF Shows Who’s Boss
According to various studies, companies whose founders remain as CEO or hold some other prominent operational role tend to create more financial value or better stock market performance than companies where the founder no longer provides a guiding hand.
Global X Funds took that notion and ran with it, launching the Founder-Run Companies ETF (BOSS), which it says is the first ETF seeking to capture the returns of those companies run by their founders. It charges an expense ratio of 0.65%.
As part of its investing thesis, Global X says company founders tend to have more skin in the game since their significant personal wealth is tied to the companies they lead. More long-term value creation comes from their innovation and entrepreneurialism.
Paving The Way For Infrastructure Investing
Investors have been drooling over infrastructure ever since Donald Trump was elected president. And why not, given his stated aim to spend $1 trillion to build and repair the nation’s roads, bridges, airports, ports and other public works projects?
The Global X U.S. Infrastructure Development ETF (PAVE) sets it sights on U.S.-listed companies that address domestic infrastructure building needs. That distinguishes it from existing infrastructure-related ETFs that have a more global focus and a heavy tilt toward infrastructure owners, such as utility and energy companies, rather than builders.