A recent Wall Street Journal article suggested there were enough ETFs in the world and all major investment bases were covered. I might tend to agree with that conclusion when it comes to long-only cap-weighted strategies. However, in the world of actively managed short-selling funds, the field is wide open. Last Friday (July 19, 2013), AdvisorShares Athena International Bear ETF (NYSEARCA:HDGI) became the first actively managed short-selling ETF to target international stocks (press release) and only the second actively managed ETF dedicated to short selling.
The new ETF seeks capital appreciation via short sales of international equity securities. HDGI is managed by AthenaInvest Advisors LLC (“Athena”) using a behavioral finance approach to security selection. By studying other managers’ behavior, strategy consistency, and conviction, Athena establishes short positions in other managers’ lowest conviction holdings and then weights them by market capitalization. Equity manager and investor behavior factors also determine the most attractive markets and capitalization ranges from Athena’s perspective, allowing a tactical overlay that allocates short and cash exposure within the portfolio. Additional information on the fund’s investment methodology is located in the fact sheet (pdf).
HDGI’s portfolio will typically range from 50 to 100 holdings, consisting of American Depositary Receipts (ADRs), international company stocks traded on U.S. exchanges, and international ETFs and ETNs. The fund’s expense ratio is 2.00%, consisting of a 0.85% management fee for AdvisorShares, 0.50% management fee for Athena, short interest expenses of 0.50%, other expenses of 0.26%, and a 0.11% fee waiver. Additional fund information is located on the overview page and in the prospectus (pdf).
Analysis/Opinion: Not only is HDGI the first actively managed ETF targeting short sales of international stocks, it is also the first ETF to employ behavioral analysis as its primary investment methodology.
According to the fund’s literature, Athena was founded in 2005 and has earned accolades for its behavioral research and managed account performance. However, the new HDGI ETF appears to be the firm’s first foray into the world of short selling. All of the other products listed on the firm’s website are long-only strategies and none of the principals’ bios indicates any previous short selling experience.
Current sector exposure includes Financials -25%, Energy -17%, Materials -10%, Consumer Staples -8%, Consumer Discretionary -8%, and Health Care -8%. The fact sheet includes a pie chart showing exposure to 16 countries. Unfortunately, there are no figures indicating the size of each slice, but my visual analysis estimates the largest exposures include the U.K. ~35%, Japan ~12%, and Canada ~8%.
Top holdings include HSBC Holdings ADR (HBC) -7.2%, Toyota Motor Corp (NYSE:TM) -7.1%, Vodafone Group PLC ADR (NASDAQ:VOD) -5.0%, and Royal Dutch Shell PLC Class A (NYSE:RDS.A) -4.4%. The fund is currently carrying a 5% cash position.
HDGI has no direct competition, and this will likely allow it to succeed despite the manager’s lack of short selling experience. It will be included in the Inverse International ETF category of the ETF Field Guide.
Disclosure covering writer, editor, and publisher: No positions in any of the securities mentioned. No positions in any of the companies or ETF sponsors mentioned. No income, revenue, or other compensation (either directly or indirectly) received from, or on behalf of, any of the companies or ETF sponsors mentioned.