Market Neutral ETF Outperforming in 2012

tlydon@globaltrend.com (Tom Lydon)
July 18, 2012

With all the major investment styles and strategies covered, new fund providers are getting creative in their exchange traded fund offerings. Setting itself apart from the established sponsors, QuantShares came out with a line of “market-neutral” long/short ETFs for defensive investors.

“As the name suggests, market-neutral funds tend to have very low betas to the equity market, as well as very low volatilities,” according to Morningstar analyst Patricia Oey. “Investors can also tactically use this fund for momentum exposure to complement a value-oriented portfolio, as value strategies tend to buy too early and sell too early.”

QuantShares U.S. Market Neutral Momentum Fund (MOM) is up 20% year to date.

QuantShares was the first firm to provide factor-based, market-neutral ETFs, providing strategies implemented by large institutional players to the average retail investor, writes Jonathan Hoenig for SmartMoney. The fund provider’s other products include:

  • QuantShares U.S. Market Neutral Value Fund (CHEP)
  • QuantShares U.S. Market Neutral High Beta Fund (BTAH)
  • QuantShares U.S. Market Neutral Size Fund (SIZ)
  • QuantShares U.S. Market Neutral Quality Fund (QLT)
  • QuantShares U.S. Market Neutral Anti-Momentum Fund (NOMO)
  • QuantShares U.S. Market Neutral Anti-Beta Fund (BTAL)

Unlike other “low volatility” or “low-beta” funds, the market neutral ETFs don’t focus on going long stock components that have historically exhibited minimal swings in volatility. Instead, the market neutral ETFs hold an equal dollar amount long and short within the various segments of the U.S. market, based on quantitative factors like momentum, size and quality.

For instance, the U.S. Market Neutral Momentum Fund leans toward stocks with the highest total return and shorts stocks with the lowest total return. Accordingly, if the momentum stocks are outperforming, the fund should reflect the outperformance.

The market neutral funds will maintain a sector-neutral, equal-weight portfolio, and rebalance on a monthly basis.

QuantShares U.S. Market Neutral Momentum Fund

For more information on long/short strategies, visit our long/short ETFs category.

Max Chen contributed to this article.