How Volatile Is Your Long/Short ETF?

by on April 25, 2013 | ETFs Mentioned:

As correlations between international markets have steadily increased over the years, identifying non-correlated assets has become both increasingly important and difficult. In this environment, long/short investment strategies may be an intriguing opportunity, as they maintain the potential to generate positive returns even in the most challenging of economic climates. Investors who wish to access the long/short sector have a number of strong options available at their fingertips [Download Free Report: How To Buy The Right ETF Every Time].

Do These ETFs Perform in the Short or Long Term?

Add some "rotation" to your portfolio with the Dividend Rotation ETFThe long/short strategy is certainly nothing new; investors have been utilizing market neutral tactics for decades, attempting to generate profits from relative mispricings regardless of whether bullish or bearish conditions exist. Originally employed using individual stocks, long/short strategies have become increasingly complex, and are now a staple of many hedge funds. But the marriage of long/short strategies and the ETF structure is a relatively new development, with a handful of funds popping up that seek to deliver absolute returns and low correlations [see 10 Questions About ETFs You've Been Too Afraid To Ask].

While these funds often boast a low volatility and correlation to both domestic and international equity markets, this is not always true. The chart below contains six of the over 20 long/short ETFs, and highlights their expense ratio, volatility and returns over the last 52 weeks:

  • Accuvest Global Long Short ETF (AGLS, A-)
  • US Market Neutral Anti Beta Fund (BTAL, C+)
  • US Market Neutral Value Fund(CHEP, C)
  • Long/Short Liquid Index (Net) ETN (CSLS, A)
  • S&P CTI ETN (LSC, A)
  • RAFI Long/Short (RALS, B)

Investors should always look into the structure of each fund and its past returns, as these aspects could be a powerful indicator of the fund’s future value in different market conditions [check out Hedge Fund ETFs Head-To-Head: QAI vs. MCRO].

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Disclosure: No positions at time of writing.