This ETF is part of a suite of “market neutral” products offered by QuantShares, a unique lineup of funds that has the potential to appreciate (or lose value) in any type of market. Because BTAL maintains equal long and short dollar positions, its performance is independent of the overall market; rather, it depends on how certain sub-sets (or factors) of the U.S. equity market perform relative to one another. As such, these securities can be used in a number of different ways. Since they should exhibit very low correlations to both stock and bond markets, some may see BTAL as a tool for smoothing out portfolio volatility—essentially a diversifying agent within traditional stock-and-bond portfolios. Others who believe the methodology has the potential to exploit market inefficiencies may see it as a means of generating alpha over both long and short time periods.

Specifically, BTAL is designed to capture the spread return between high beta and low beta stocks; the portfolio maintains long positions in low beta stocks and short positions in high beta stocks. As such, BTAL can be generally expected to perform well when the market declines and to struggle when markets are climbing. This strategy is certainly nothing new; investors have been implementing strategies designed to capture the spreads between asset classes or sub-classes for decades. But the availability of this strategy within the ETF wrapper is a new innovation; it gives investors an opportunity to access a technique that may be time consuming and quite expensive if implemented individually through a single ticker symbol that brings all the efficiencies of ETFs.

There are a couple interesting aspects of BTAL (and all QuantShares ETFs for that matter). The underlying portfolios are sector neutral, which ensures that the fund isn’t simply long in sectors that traditionally exhibit low betas (such as utilities) and short sectors that have high betas (such as technology); rather, BTAL consists of both long and short positions in each sector of the market. Moreover, individual positions are equal weighted, which ensures that no one stock will dominate either the long or short positions in the portfolio.

For investors who are seeking a low maintenance way to access this long/short strategy, BTAL could be an attractive option. This ETF could also be a useful tool for investors looking to bet on a market decline but unwilling to take on the significant risk that comes with a short-only strategy. BTAL should function as a tool to perform well in down markets, but with limited downside if stocks actually climb. The most significant drawback we see is the relatively high expense ratio. Because the underlying portfolio is market neutral, it would be reasonable to expect that long-term performance, before fees, should be close to zero. After taking out 80 basis points or so in expenses, that makes it likely that BTAL will lose money over the long haul, especially if markets trend upwards over the long run.