By Roger Nusbaum:
Today AdvisorShares is launching the Athena International Bear ETF (HDGI - News). AdvisorShares has had success with the Ranger Equity Bear ETF (:HDGE) which sells domestic stocks short and the new fund will sell foreign stocks short.
The strategies underlying the two funds are much different however. HDGE focuses on accounting issues and HDGI focuses on behavioral issues of portfolio managers looking for "low conviction holdings." Basically it is a black box screening process looking at the universe foreign stocks with US traded ADRs. Stocks with the weakest scores populate the fund.
There is also a tactical overlay which gives some flexibility to managers to favor different market caps and how much short exposure to maintain. The prospectus allows for the fund to only be 50% invested but it is unlikely that will ever be the case.
HDGI sub-advisor Athena says there are two reasons to use a fund like this; one would be for tactical reasons and the other as a hedge. Where HDGE gives investors an alternative to domestic inverse funds so too does HDGI give an alternative to foreign inverse funds. The differences between the two are pretty simple to understand. Inverse index funds are subject to the daily reset which at times is a good thing and at other times is a bad thing. Over some extended period of time an inverse fund might perform the way an investor would hope or it might not, there is no way to know which is why there are warnings about holding them long term.
The risk to owning either HDGE or HDGI is the reliance on the sub-advisors' strategies working. Also a fund that sells short should be expected to decline in value if the market goes up. HDGE is down 40% since its inception but the S&P 500 is up 30%. HDGE's chart is almost a perfect mirror image of the S&P 500.
If from here foreign stocks generally decline then a broad based fund like HDGI should go up (no guarantee) but in an up market the fund should be expected to drop.
As far as being broad based it seems to be reasonably diversified at the sector level. It does have slightly higher concentrations in a couple of stocks than I would have expected with roughly 7% short in both HSBC (:HBC) and Toyota (:TM). There is no country breakdown posted but in looking at the holdings the fund appears to be heaviest in Japan and the UK.
There is more information on the behavioral strategy available at the above link by listening to the manager minute.
Disclosure: I sub-advise an ETF for AdvisorShares. I was asked to do a writeup on HDGI but I am not being compensated for this post. My intention is simply to help create awareness of a new fund; the strategy underlying the fund is new to me too.