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Hedged Bear ETF no Fan of 3D Printing Stock


Three-dimensional printing is viewed as a game-changing, disruptive technology, the likes of which do not come around everyday. The result has been exponential growth not only for the industry at large, but for the shares of publicly traded 3D companies, including 3D Systems (DDD).

Since coming public in May 2011, shares of 3D Systems have nearly quadrupled. Just this year, the stock is up more than 40%, but not all investors are bullish on the stock. In fact, 3D Systems bulls should note the stock is now included in the lineup of the AdvisorShares Ranger Equity Bear ETF (HDGE) . HDGE is an actively managed fund that tries to reflect the inverse performance of domestically traded equity securities through short-sale trades. [ETF Spotlight: Active Bear ETF]

Components are selected based on income statement, cash flow statement and balance sheets in an attempt to weed out companies with low earnings or suspect accounting practices, along with other qualitative analysis. Now, one of those holdings is 3D Systems. [ETF Focus: AdvisorShares Active Bear ETF]

“This is a new short sale position in the short-selling ETF for the maker of 3D printers, print materials, on-demand custom parts services and 3D authoring solutions. The accounting has been identified as problematic because the company’s huge revenue beat was accompanied by a sharp increase in accounts receivable, with its days sales outstanding (DSOs) rising from 70 to 84 in the latest quarter on a year-over-year basi s…,” reports Jon Ogg for 24/7 Wall Street. http://247wallst.com/investing/2013/09/11/short-selling-etf-sends-up-red-flags-on-3d-printing-leader/

With a trailing P/E ratio of 132.2 and a forward P/E of almost 39, 3D Systems can be viewed as a richly valued stock and valuation is part of the concern at HDGE’s management team, according to 24/7 Wall Street. Growth stocks with frothy valuations can be vulnerable to earnings misses and negative revisions, scenarios HDGE’s managers look to exploit.

“The portfolio management team seeks to identify earnings driven events that may act as a catalyst to the price decline of a security, such as downwards earnings revisions or reduced forward guidance,” according to the fund’s web site. [http://advisorshares.com/fund/hdge]

It should be noted that is appears to be a new position for HDGE and the bearish bet on 3D Systems is just 1.04% of the ETF’s portfolio, barely ahead of the 1.03% weight given to a short position in Green Mountain Coffee Roasters (GMCR). Short positions in Dow components International Business Machines (IBM) and Caterpillar (CAT) are HDGE’s two largest positions, combing for just over 11% of the ETF’s weight.

AdvisorShares Ranger Equity Bear ETF

ETF Trends editorial team contributed to this post.

The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.