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New ETF Captures Hedge Fund Strategy

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Heather Bell
·2 min read
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Today, ASYMmetric ETFs rolled out the first alternative ETF to combine a long/short approach with a risk on/risk off hedging strategy in an effort to provide positive returns across all market environments.

The ASYMshares ASYMmetric 500 ETF (ASPY) tracks the long/short ASYMmetric 500 Index, which is derived from the S&P 500 and has been adapted with the firm’s risk management technology that is designed to protect against downturns while capturing the majority of upside performance.

ASPY comes with an expense ratio of 0.95% and lists on the NYSE Arca.

“At the core of what we’re doing at ASYMmetric ETFs is we’re bringing an institutionally vetted and proven technology to the mainstream,” said ASYMmetric ETFs CEO Darren Schuringa.

“We want to level the playing field at ASYMmetric ETFs. And part of the way we’re doing that is by bringing these 1% solutions to the 99%,“ he added.

The strategy has been applied to the MLP space for a hedge fund strategy that was seeded by PAAMCO with $250 million in 2015, Schuringa says, describing the strategy as “wealth creation through capital preservation.”

“ASYMmetric, through technology, is bringing the benefits of hedge funds—asymmetric returns—to Main Street and has the potential to revolutionize the way retail investors and financial advisors invest in managed portfolio risk,” he said.    

Methodology

The index’s methodology targets the lowest-volatility stocks in each of the index’s sectors to be part of the fund’s “long book”—with the ultimate goal of including roughly 50 stocks—while the “short book” is largely represented by exposure to the S&P 500 Index as a whole through derivatives or short sales. The index’s net exposure can range from 75% long to -25% short, according to the prospectus.

Price momentum and expected price volatility determine how the index allocates between long and short. If momentum is trending higher while volatility remains low, the environment qualifies as “risk-on” and the index looks to offer 75% net exposure to its long book. When momentum is trending down and volatility is low, the environment is deemed “risk-elevated” and the index offers 0% exposure, or market neutral exposure. When momentum is trending down and volatility is high, the environment qualifies as “risk-off” and the index aims for net exposure of -25%, the document says.

It notes that in such a “risk-off” scenario, the index calls for selling shares of the SPDR S&P 500 ETF Trust (SPY) short to achieve the requisite short exposure.

“A bear market is not the time to be a hero, but we also want to position our investors in such a fashion that they can make money and profit in bear markets,” Schuringa said. “Regardless of the market environment, your money can be working toward [generating] a positive return.”

Contact Heather Bell at hbell@etf.com

 

 

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