ETF Spotlight: U.S. Market Neutral Anti-Beta Fund (BTAL)

by on October 8, 2014

As the ETF universe continues to expand, the number of funds available at investors’ fingertips can be overwhelming. Keeping up with new launches while having the time to study previous products can be quite a tall order. In an effort to shed more light on some of the products out there that are flying under the radar for many investors, below we’ll take a deeper dive into a unique fund; more specifically, we’re taking a look at the U.S. Market Neutral Anti-Beta Fund (BTAL) from QuantShares

Inside BTAL’s Strategy

BTAL is among the more unique ETFs out there, as it employs a long-short strategy all under one convenient ticker. The fund tracks an index that rebalances each month in an attempt to remain neutral in the current market environment. It does this by taking long positions in the lowest beta stocks and taking short positions in high beta stocks. The idea being that high beta stocks are more risky than their low beta counterparts, allowing the fund to cash in on any volatility in the riskier holdings while having the added benefit of holding key blue chips in its portfolio.

dsgThe fund has approximately 200 long and 200 short positions at any given time. Investors should note that this fund is also sector neutral, meaning that each time it rebalances it ensures that its long positions in a certain sector are accompanied by an equal short position. This is an important distinction to make because a number of low/high beta stocks are concentrated on certain sectors; BTAL’s strategy will help ensure that it does not over-indulge in any one sector [for further details see BTAL's fact sheet].

Considerations on BTAL’s Performance

As a market neutral fund, BTAL is designed to deliver performance in any market environment. Basically, the fund counts on either the long positions rising more than the short positions lose or for the long positions to fall less than the short positions gain. The thesis behind BTAL is that the neutral strategy will be able to yield positive returns no matter which way the market is headed.

Investors should note that despite being a market-neutral fund, BTAL will tend to underperform during bull markets. This is because the high beta stocks typically outperform low beta stocks (meaning that the short positions lose more than the long positions gain), during times of market prosperity. What BTAL has yet to see (as it launched in 2011) is how it will perform during a bear market, where high beta stocks tend to fall more than low beta ones. It is not inconceivable to say that BTAL would likely prefer a downward-trending market than anything else.

How to Use BTAL in a Portfolio

BTAL would rarely find itself as the core holding in a portfolio, but rather as a satellite position that complements an over-arching strategy. It may be an appropriate allocation for anyone with defensive tendencies or those who think the bull market is nearing its top. The fund charges 99 basis points, which is on the high end until you consider its exposure.

BTAL offers a long-short strategy at a lower cost than you could employ yourself and also protects you from holding short positions, which have theoretically unlimited loss potential. The bottom line being, do not be scared off by BTAL’s fees if you are a fan of the strategy; you will be hard pressed to find a cheaper deal elsewhere.

For the most part, this fund is designed for those with a knowledge of how the long-short strategy works, and may not be appropriate for retail investors or those with a lack of understanding of its strategy.

The Bottom Line

The strategy employed by BTAL is among the most unique in the ETF world and can be a powerful tool for those who understand it. As always, be sure to take a look under the hood of BTAL to make sure you fully understand how it operates prior to making an investment.

Follow me on Twitter @JaredCummans.

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Disclosure: No positions at time of writing.