Lamensdorf says one of his favorite current SQZZ holdings is Weight Watchers, where short positions make up more than 60 percent of the stock’s float, creating a huge potential short squeeze. There was a taste of a short squeeze last month when a good earnings report boosted the stock from $12 to $18 in two trading sessions. It has since pulled back to the $14 range.
“It’s a complete turnaround that’s doing great,” Lamensdorf says of Weight Watchers. “It’s not a very expensive stock. I don’t know why 62 percent of the float is short, but they were proved very wrong last month and I don’t see a lot of covering going on, so I assume it’ll take quite a run to shake all of these people [short sellers] out of the stock.”
And while he’s sitting in Weight Watchers, Lamensdorf adds, he’ll earn additional money by lending Weight Watchers securities to banks and brokers.
The investible universe for SQZZ falls into three buckets: high notional shorts; high short interest ratio and the high negative borrow pool, which pertains to the ability to garner attractive interest income by lending securities.
General Electric is a SQZZ holding that fits into the high notional short category. Lamensdorf says GE’s inclusion in the fund surprises people, but he explains that while just 1.5 percent of the float is short, it still represents $3.5 billion.
“That’s bigger than some of the companies in the fund,” Lamensdorf says. “And I think that’s a lot of money getting ready to go in the wrong direction. Is it a powerful short squeeze like could happen with WTW [Weight Watchers]? Probably not, but it’s a good turnaround story.”
In addition to SQZZ, Lamensdorf is also co-manager of the actively managed AdvisorShares Ranger Equity Bear ETF (HDGE). The difference between the two is HDGE is a short-only fund while SQZZ takes long positions in shorted stocks.
HDGE has nearly $175 million in assets under management, but has annualized returns of negative 15 percent since inception in January 2011. That’s not surprising, considering that the equity market historically is in positive mode the vast majority of time. That said, Lamensdorf says the fund isn’t meant to be a buy-and-hold product, and that it has worked as intended by producing alpha during market downturns.
The SQZZ fund has a net expense ratio of 1.95 percent, which 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.
In that vein, Lamensdorf says financial advisors can use SQZZ in the liquid alts sleeve of client portfolios.