Making Money With Contrarian ETFs

April 26, 2017 I’d argue that “plain vanilla” investors index because they don’t believe anyone can consistently time the market. You pitch actively stock picking and timing the market. How can you reliably time the market?

Lamensdorf: Some people may have a tough time doing it. But I have shown over and over and over through my entire career that it can be done.

But the fact that people think you have to be 100% invested to make money is just not so. HDGE stays 80-100% invested, and frankly, that wouldn't have been my choice. But we're competing against the inverse products, and it's a hedge-fund-oriented product, but it’s a dedicated short-only. So when we do get corrections, we raise about 10-15% cash, and we’ve done that several times.

For SQZZ, and where it is now, you can easily make money off this. Just the fact that I'm loaning out, say, 30% of the book and making, let's call it an average of 5% annually—I don't know exactly what it is, but I'm just kind of giving you an idea—that's an extra 150 basis points to the shareholder every year. How has investor reception of SQZZ been?

Lamensdorf: It's been mixed. We're almost out of our seed in the first month, so we've been working on that. Every ETF is going to take a few months to get approved at certain brokerage firms and go through that process, just as HDGE did.

But I think some people are very concerned that the fee is very high. My response to that is that I'm giving you 100% of the securities lending business back, which will more than cover the entire fee. So I think I'm actually being very generous. Other asset managers would probably charge 1% and then take a large portion of securities lending and be making 2%-plus a year on the money. But I'm not doing that.

Obviously, if we had launched last fall, when things were looking shakier and people were more concerned, we would’ve been 60% or 80% invested, and we wouldn't even be having this conversation. Our indicators were bullishly positioned last fall due to sentiment gauges. Therefore, we would have been much more invested. And people would have been happy with it, and they wouldn't have even focused on the cash allocation.

Because I start with a lot of cash, everyone's saying, “Why would I pay for this?” You're paying for a manager with a focus on beating the market. Should we expect more of these types of products from you?

Lamensdorf: At Active Alts, my new company, all we're going to be focused on is alternative investments in the active space. We're going to be, later in the year, coming out with some long/short-oriented products as well.

Contact Cinthia Murphy at [email protected]


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