This Day On The Street
Continue to site
ADVERTISEMENT
This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here

Absolute-Return ETFs Get Timing Right

NEW YORK ( TheStreet) -- A few days ago AdvisorShares started the Mars Hill Global Relative Value ETF (GRV). The exchange traded fund employs an active long-short strategy with ETFs in pursuit of an absolute return.

It has been a while since there have been any absolute-return ETFs listed. The timing of this one, assuming it can deliver on its objective, could be quite good. The S&P 500 is up 60% from its low in March 2009 and down only slightly from its recent peak. A common practice in the industry is to bring a specialized product at the height of demand. An absolute-return fund offers far more potential after a big move up in the market as opposed to after a big move down.

The makeup of the fund as of July 15 was long 100% and short 100%.

While it is difficult to know the exact strategies at work, there does appear to be several in place. The more long-short pairings the fund has, the less risk the fund takes on if it is wrong on one of its bets. For example, the fund has 70% of its long exposure in various countries such as iShares MSCI Japan (EWJ), Market Vectors Indonesia ETF (IDX) and iShares MSCI Mexico (EWW) and 50% of its short exposure in countries at the heart of the European debt problems.

The fund is 20% short iShares MSCI France Index Fund (EWQ), 10% each in iShares MSCI Spain Index Fund (EWP) and iShares MSCI Italy Index Fund (EWI) and 5% short in iShares MSCI Belgium Index (EWK) and iShares MSCI Austria Index Fund (EWO).

The fund manager's interest in being short a couple of the PIGS countries -- financially troubled Portugal, Ireland, Greece and Spain -- and perhaps a couple of related countries they feel could also be in trouble makes sense, but to the extent that this is a financial crisis and that financial companies would seem to be most at risk if this thesis plays out, it is interesting that they chose not to take a more precise short position in something like the iShares Europe Financial Sector Index Fund (EUFN).

One reason not to use a fund such as the iShares Europe Financial Fund is that it only has $4 million in assets and only averages 26,000 shares traded per day, which speaks to one of the drawbacks of the Mars Hill Global Relative Value ETF -- potentially the lack of precise exposures.

1 of 2

Check Out Our Best Services for Investors

Action Alerts PLUS

Portfolio Manager Jim Cramer and Director of Research Jack Mohr reveal their investment tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
Quant Ratings

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
Stocks Under $10

David Peltier uncovers low dollar stocks with serious upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
14-Days Free
Only $9.95
14-Days Free
To begin commenting right away, you can log in below using your Disqus, Facebook, Twitter, OpenID or Yahoo login credentials. Alternatively, you can post a comment as a "guest" just by entering an email address. Your use of the commenting tool is subject to multiple terms of service/use and privacy policies - see here for more details.
Submit an article to us!
SYM TRADE IT LAST %CHG
EUFN $23.89 1.10%
EWQ $27.49 1.20%
EWP $35.61 0.91%
EWO $16.82 0.84%
EWJ $13.28 -0.23%

Markets

DOW 18,037.97 -42.17 -0.23%
S&P 500 2,108.92 -8.77 -0.41%
NASDAQ 5,060.2460 -31.8390 -0.63%

Partners Compare Online Brokers

Free Reports

Top Rated Stocks Top Rated Funds Top Rated ETFs