Replies to post #1026 on Global Value Investing

[soulstealer]

Thanks much :)

[ratobranco]

HDGE is awesome. It is a way to play a coming recession without having to actually go short, monitor positions 24-7, and risk infinite downside. And you don't have to worry about all of the funky money-losing decay that happens in inverse ETFs. Just good old fashion plain-vanilla fundamentals-driven shorting made easy through an ETF. Bear in mind that there are a LOT of really crappy companies in this market.

Here is the website for HDGE. People should listen to the presentation.

http://advisorshares.com/fund/hdge

John Del Vecchio, the manager, discusses the strategy the fund uses for shorting. They look for companies that are playing accounting games, using earnings gimmicks to hide deterioration in the business. Those companies are the most likely to disappoint on earnings in future quarters. And earnings disappointment is what drives downside.

They were all over the crappy US banks at the beginning of the year. BAC, C, they were short all of the garbage when the euphoria was in, and it paid off very well. They were also all over JNPR. Called that mess from the start. They've shorted a few china names, like ASIA, not any of the RTO's though. One key criterion that they use for stock selection is low short interest and ample liquidity to ensure that they don't get caught in a NFLX style short-squeeze momentum name. So the China RTO's are pretty much disqualified.

The fund has done an excellent job avoiding momentum go-go names. They respect technicals, they even have a technical analyst on the team, so when a position starts to show signs of building momentum, or is going against them, they exit and regroup for a better entry. They aren't trying to be contrarian heros, just trying to sell what is headed lower.

I absolutely love this ETF. It lets me go long deep-value, long term-names like OGXPY and BAJFF without having to worry about overall market risk. If the market crashes, I will make money. And I can make money even if the market doesn't crash, provided that my commodity picks perform better than the garbage that HDGE is shorting (I am net short on a beta-basis, of course, so my picks need to perform meaningfully better, which I think they will).