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3 Long/Short ETFs to Wait Out Volatility - ETF News And Commentary

Uncertainties loomed in the global stock markets last week thanks mainly to the nagging Greek debt default drama and the burst of Chinese stock bubbles. The contagion effect of the double whammy was powerful enough to derail the otherwise decent momentum in the global markets.  

Though the fear of a default has been haunting investors on and off for the last few years, never before has it been felt so acutely. The Greek mayhem has led European stocks to survive the most awful ‘three months’ in Q2 since 2012. On the other hand, China stock sell-off on overvaluation concerns spread jitters among investors (read: Top ETF Stories of June).

Chinese stocks, especially the A-shares, had performed phenomenally in the first five months of the year with some of the ETFs having almost doubling the gains. But a sky-high valuation and a faltering economy despite a spate of stimulus measures launched by the central bank caught investors off guard in recent times.

Though the Chinese crash was not baseless given a 24-year low GDP growth rate in 2014; astounding gains in Chinese equities (so far) came on the heels of hopes for massive policy easing. No solid economic data point actually fueled the rally. 

Though the U.S. market was not completely immune to ripples of negative currents, finally forcing the S&P 500 to see the ‘worst first half’ in five years, America is nonetheless sitting pretty among the global pack. Its economic data shaped well in Q2 shrugging off the winter-induced gloom of Q1. This leaves the U.S. as the most stable investment haven amid the unsettling backdrop of the second half (read: Invest in America with These 4 ETFs).

Still, it would be wise for investors to rather settle on safe ETFs while playing the U.S. After all, the U.S. economy appears primed for a rate hike in the second half which is likely to add some more disruptions to the already chaotic scene.

If we price in all the factors influencing 2H investment decisions, we will end up seeing that volatility is the only reliable factor. So, it’s better to play safe for the moment. If caution is the keyword, investors can take a look at these three long/short ETFs which have beaten the S&P 500 last week and in the last one month. Notably, the S&P 500‘s weekly and monthly loss stand at 1.3% and 1.8% respectively (see: all Long/Short ETFs here).

U.S. Market Neutral Momentum Fund (MOM)
 
The fund looks to track the performance of the Dow Jones U.S. Thematic Market Neutral Momentum Index. The target index is equal weighted, dollar neutral and sector neutral. The index takes the highest momentum stocks into account as long positions and the lowest momentum stocks as short positions, in almost equal measure within each sector. Thanks to its focus on momentum stocks, this low volatile ETF offers a nice return even in a bull market.

The basket of about 200 stocks that the fund is long on seeks to outperform the portfolio of about 200 stocks with short positions. Despite its solid strategy, the product has so far been overlooked by investors with AUM of $1.2 million and average daily volume of nearly 2,000 shares. It charges a fee of 1.49% per year from investors and has gained 3.5% last week (as of July 2, 2015) and 0.2% in the last one month. The fund is over 5.5% so far this year while the S&P 500 has added 0.9% during this time frame. 

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

Investors who want to shift their focus on investing in low beta stocks during this uncertain market environment can consider adding BTAL ETF to their portfolio. This fund tracks the Dow Jones U.S. Thematic Market Neutral Anti-Beta Total Return Index which is an equal weighted, dollar neutral, sector neutral benchmark. The index identifies the lowest beta stocks and goes long on them, while at the same time going short on the highest beta stocks (read: 3 Low Beta ETFs for a Choppy Market).
 
Like MOM, this fund also invests in equal dollar amounts for both the long and short positions, and looks to profit from the spread return between low and high beta stocks.  Like MOM, this is also thin on AUM having amassed just $4 million in assets. It trades in over 8,000 shares daily on average which results in a wide bid/ask spread and high trading costs. The fund charges 99 basis points as expenses and has gained 2.3% in the last one week (as of July 2, 2015) and 0.4% in the last one month.

QuantShares U.S. Market Neutral Size Fund (SIZ)
 
This fund invests in low capitalization securities while at the same time shorts high capitalization stocks of approximately equal dollar amounts within each sector. It seeks to deliver the spread return between high and low ranked stocks. This can easily be done by tracking the Dow Jones U.S. Thematic Market Neutral Size Index.

The fund is expensive charging 1.49% in fees per year and trades in a paltry volume of under 2,500 shares per day. SIZ is unpopular having AUM of $2.4 million and has added 0.6% in the last one month. Though the fund was flat in the last one week, it is up over 1% so far this year.
  
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QS-US MN MOMNTM (MOM): ETF Research Reports
 
QS-US MN AN-BET (BTAL): ETF Research Reports
 
QS-US MN SIZE (SIZ): ETF Research Reports
 
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