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 |
|---|---|---|---|
| Simplify Exchange Traded Funds Simplify Managed Futures Strategy ETF | ARCX:CTA | 28.70 | USD |
| KFA Mount Lucas Managed Futures Index Strategy ETF | ARCX:KMLM | 28.20 | USD |
| LHA Market State Alpha Seeker ETF | BATS:MSVX | 22.38 | USD |
| ProShares Hedge Replication ETF | ARCX:HDG | 49.81 | USD |
| ProShares Long Online Short Stores | ARCX:CLIX | 46.51 | USD |
| First Trust Merger Arbitrage ETF | ARCX:MARB | 19.78 | USD |
| iMGP DBi Hedge Strategy ETF | ARCX:DBEH | 27.33 | USD |
| WisdomTree Target Range Fund | XNAS:GTR | 24.09 | USD |
| IQ Hedge Mutli-Strategy Tracker ETF | ARCX:QAI | 32.13 | USD |
| Changebridge Long/Short Equity ETF | ARCX:CBLS | 26.42 | USD |
| Discipline Fund ETF | BATS:DSCF | 22.64 | USD |
| Capitol Series Trust Hull Tactical US ETF | ARCX:HTUS | 45.26 | USD |
| Prshr Lrg Cap Cr | BATS:CSM | 66.98 | USD |
| AltShares Event-Driven ETF | ARCX:EVNT | 10.52 | USD |
| FRANKLIN LIBERTY SYSTEMATIC | ARCX:FLSP | 23.84 | USD |
| First Trust Long/Short Equity | ARCX:FTLS | 66.16 | USD |
| Trust for Professional Managers Convergence Long/Short Equity ETF | BATS:CLSE | 23.15 | USD |
| AGFIQ US MARKET NEUTRAL ANTI | ARCX:BTAL | 19.07 | USD |
| Siren DIVCON Dividend Defender ETF | BATS:DFND | 42.27 | USD |
| Leatherback Long/Short Alternative Yield ETF | ARCX:LBAY | 24.17 | USD |