We all know there has been a proliferation of Exchange Traded Funds (ETFs) that have sliced and diced the market into ever finer segments without actually adding value.
However there is a new product I can embrace as a true contrarian play and has a place in a diversified portfolio.
The Short Squeeze ETF – it looks to buy hated stocks with a large short interest buy, basically sound fundamentals. And it has added a nice income stream by planning to lend out, at a fee, those very shares it buys, which are hard to borrow to the very short sellers it’s betting against. I like it.
Read More about it below:
ETF industry veteran Brad Lamensdorf launched today The Active Alts Contrarian ETF (NASDAQ: SQZZ), a first-of-its-kind actively managed ETF that seeks capital appreciation by investing in companies with solid fundamentals that have very large short positions and are subject to a short squeeze. Also, as a secondary investment strategy, Lamensdorf intends to lend out the hard-to-borrow securities in an effort to earn a stream of monthly income which has the potential to enhance the total return.
“SQZZ is the first ’40 Act fund to employ this novel strategy of seeking to capitalize on “short squeeze” opportunities and generate potential income by getting paid for lending securities,” said Lamensdorf.
The SQZZ ETF portfolio manager screens securities that are highly shorted to isolate indications of unexpected values. “Because of changing market conditions or smart management moves, highly shorted securities may have promising fundamentals, creating the potential for a profitable short squeeze,” Lamensdorf explains.
The ETF invests in securities with market capitalization of $250 million or greater with at least $1 million a day in trading volume. The strategy does not have to be fully invested at all times, and it can raise 100% cash if warranted by market conditions, which may allow the fund to outperform in bear markets.
Moreover, until a short squeeze materializes, SQZZ investors earn current income by receiving the majority of the interest from banks who are paid by borrowers of the security. Typically, when securities are loaned from an investor’s margin account, the investor earns nothing— the payment is kept by the bank or broker. SQZZ is not typical; when it loans securities, the bank will pay the ETF the majority of the interest it may earn, that income goes to SQZZ investors in the form of a dividend.
— The Option Specialist