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HDGE Gathers Steam Despite High Fees

August 09, 2012
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HDGE has attracted over $300 million in assets despite a sky-high expense ratio. Why?

 

What Is HDGE?

Don’t lump this fund in with other hedge-fund-style ETFs. Instead, think of the word “hedge” implied by the fund’s ticker in the context of directly hedging equity exposure that you have elsewhere in your portfolio.

From a performance point of view, the AdvisorShares Active Bear (NYSEArca: HDGE) is an actively managed inverse equity fund. One look at the chart below showing HDGE’s returns against the SPDR S&P 500 (NYSEArca: SPY) confirms this.

HDGE vs SPY

This return pattern sets HDGE apart from the slew of hedge-fund-wannabe ETFs that generally aim for positive returns uncorrelated with major asset classes. But HDGE’s returns clearly show strong negative correlation with equities.

HDGE’s peers aren’t hedge-fund-style ETFs, but rather inverse U.S. equity funds; more specifically, unlevered inverse funds as opposed to those with -2x or -3x exposure. The chart below shows one-year returns for HDGE against the other top 1x inverse equity funds.

HDGE vs Inverse

HDGE currently outpaces its 1x inverse equity competitors in terms of one-year returns as the table below shows. (HDGE’s peers are the ProShares Short S&P 500 (NYSEArca: SH), the ProShares Short Russell 2000 (NYSEArca: RWM), the ProShares Short Dow30 (NYSEArca: DOG) and the ProShares Short QQQ (NYSEArca: PSQ)).

 

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