Long/short equity ETFs
Long/short equity trading is where you build a portfolio that mostly consists of "good" stocks that you are going long with, supplemented by "bad" stocks that you are selling short. The most common long/short strategy is probably the "130/30" strategy, where you try to obtain a net 100% long exposure by going 130% long and 30% short. Although it is considered to be an "alternative" investment strategy, it can be successfully used as part of a core "long" portfolio.
The key to success with a long/short strategy is to successfully identify "good" stocks and "bad" stocks. Each of the long/short ETFs follow indexes that use different approaches, so you have to read the ETF's prospectus for details.
CSM, the ProShares Large Cap Core Plus ETF, follows the Credit Suisse 130/30 Large Cap Index, which selects long and short positions using an "expected alpha" score. The "Alpha" score for each stock is based on 50 factors including fundamental data from financial statements, consensus earnings forecasts, market pricing and volume data. These 50 factors are grouped into ten equal-weighted factor composites in the following categories: 1) Traditional Value; 2) Relative Value; 3) Historical Growth; 4) Expected Growth; 5) Profit Trends; 6) Accelerating Sales; 7) Earnings Momentum; 8) Price Momentum; 9) Price Reversal; and 10) Small Size.
Andrew Lo and Pankaj Patel published an influential paper in 2008 called 130/30: The New Long-Only that explains and analyzes in detail the Credit Suisse 130/30 approach. Even though it is very technical, and at times hard to follow, it is well worth the read.
Here are the long/short equity ETFs, if you want to read more about their strategies:
| Name | Symbol | Last price | Currency | AUM | Expense ratio, % | Inception date |
|---|---|---|---|---|---|---|
| First Trust Long/Short Equity | ARCX:FTLS | 68.07 | USD | 1,417,851,723 | 1.46 | Sep 09, 2014 |
| NYLI Hedge Multi-Strategy Tracker ETF | ARCX:QAI | 31.94 | USD | 669,741,765 | 0.91 | Mar 25, 2009 |
| ProShares Large Cap Core Plus | BATS:CSM | 68.76 | USD | 478,264,960 | 0.45 | Jul 14, 2009 |
| Simplify Exchange Traded Funds Simplify Managed Futures Strategy ETF | ARCX:CTA | 28.88 | USD | 392,577,472 | 0.76 | Mar 07, 2022 |
| KraneShares Mount Lucas Managed Futures Index Strategy ETF | ARCX:KMLM | 27.45 | USD | 373,371,275 | 0.90 | Dec 02, 2020 |
| AGF U.S. Market Neutral Anti-Beta Fund | ARCX:BTAL | 17.78 | USD | 319,313,030 | 1.43 | Sep 13, 2011 |
| Franklin Systematic Style Premia ETF | ARCX:FLSP | 23.91 | USD | 204,687,000 | 0.65 | Dec 23, 2019 |
| Trust for Professional Managers Convergence Long/Short Equity ETF | BATS:CLSE | 23.99 | USD | 149,679,810 | 1.55 | Feb 22, 2022 |
| Capitol Series Trust Hull Tactical US ETF | ARCX:HTUS | 39.44 | USD | 64,142,602 | 0.96 | Jun 25, 2015 |
| WisdomTree Target Range Fund | XNAS:GTR | 24.09 | USD | 59,211,250 | 0.70 | Oct 07, 2021 |
| Discipline Fund ETF | BATS:DSCF | 22.61 | USD | 43,092,000 | 0.39 | Sep 20, 2021 |
| Leatherback Long/Short Alternative Yield ETF | ARCX:LBAY | 24.30 | USD | 39,370,772 | 1.24 | Nov 17, 2020 |
| Clough Hedged Equity ETF | ARCX:CBLS | 28.26 | USD | 34,356,630 | 2.59 | Nov 13, 2020 |
| First Trust Merger Arbitrage ETF | ARCX:MARB | 19.99 | USD | 31,049,640 | 1.80 | Feb 05, 2020 |
| ProShares Hedge Replication ETF | ARCX:HDG | 49.80 | USD | 27,587,082 | 0.95 | Jul 14, 2011 |
| LHA Market State Alpha Seeker ETF | BATS:MSVX | 22.38 | USD | 18,278,100 | 1.26 | May 15, 2020 |
| Siren DIVCON Dividend Defender ETF | BATS:DFND | 43.70 | USD | 9,545,281 | 1.63 | Jan 20, 2016 |
| iMGP DBi Hedge Strategy ETF | ARCX:DBEH | 27.33 | USD | 9,369,500 | 0.85 | Dec 18, 2019 |
| ProShares Long Online/Short Stores ETF | ARCX:CLIX | 49.34 | USD | 8,417,728 | 0.65 | Nov 16, 2017 |
| AltShares Event-Driven ETF | ARCX:EVNT | 10.79 | USD | 4,816,276 | 1.29 | Sep 20, 2021 |