LBAY: Short Bubble, Long Value, Actively Managed Long-Short Equity ETF

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February 26, 2023, 11:54 ET

Leatherback Long/Short Yld ETFs (LBAY).

BiotechValley Insights

LBAY, a long-short equity ETF, provides superior returns and risk management than long-only ETFs or the S&P 500 in a rising inflationary and interest rate environment.

LBAY's high yield, beta-neutral and value-focused strategy, as well as its dividend-paying strategy, offers a diversified portfolio that includes undervalued stocks. This minimizes downside risk and increases the potential for capital appreciation.

Historical market trends have shown that long-short fundamental-equity hedge funds outperform long only managers, particularly during periods of market volatility and uncertainty.

LBAY is a diversified investment that offers better returns and manages risk.

Torsten Asmus

Introduction

Leatherback Short/Long Alternative Yield ETF

LBAY

The ) is an equity ETF with a long duration that focuses on long-short exposure. It aims to give investors exposure to a broad portfolio of stocks undervalued while minimising downside risk. The fund's strategy is beta-neutral and high-yield (although the fund does not have a beta-neutral component).

Can have a flexible net exposure

0-80%

Value-focused, dividend-paying and value-focused. LBAY aims at generating income by investing in a diversified portfolio high-yielding, undervalued stock while minimizing market risk by remaining market neutral. Value-focused investing is a strategy that aims to create a portfolio of undervalued stocks that will provide capital appreciation over the long term. The fund also pays out dividends at a higher rate than 2%, which covers the high management fee.

1.32%)

Investors will receive a steady stream income from this fund. LBAY's portfolio was designed to protect investors from rising interest rates and inflation.

Rates with a focus of income and value. The fund's strategy is quantitative and disciplined. It seeks to identify undervalued stocks that have attractive fundamentals, while protecting against downside risk by taking short positions in overvalued stock. Investors are seeking assets that can protect against rising inflation and high interest rates as the economy continues to face increasing risks. As you can see, LBAY has outperformed the S&P500 by a large margin. This is due to its low exposure and high quality and value-focused stock picks. This trend is expected to continue into 2023, as fundamentals have not changed much (the yield curve remains negative, FED still hawkish and the interest rate is still rising).

Performance of LBAY

(Company source)

Diversified, actively managed holdings that are less than 5 lbs tech

LBAY Holdings

(LBAY Holdings)

LBAY holds a fairly diverse portfolio, but is underweighted in technology stocks (compared with S&P 500)

SPY

In the current economic climate of rising inflation and high interest rates, we believe that LBAY's current strategy of underweighting the technology sector exposure might be a prudent one. The history shows that technology has had a tendency to perform poorly during high inflation and high interest rates. Technology stocks were unable to keep pace with the wider market during high inflation and high interest rates in the 1970s and 1980s. Similar to the earlier period of rising interest rates, technology stocks saw a substantial decline that culminated in the "tech bubble" bursting in 2001.

LBAY top holdings

(LBAY top holdings breakdown)

Technology sector's (

QQQ

Due to the company's dependence on borrowing and leverage to finance its growth, technology companies are more vulnerable to rising interest rates. Investors tend to favor industries such as industrials, energy, and materials in an inflationary environment. These sectors are better positioned for higher commodity prices, which align with LBAY’s high commodity exposure.

The technology sector has been a major contributor to stock market gains over the past few years. Technology stocks account for a large portion of the S&P 500 returns. However, this trend is unlikely to continue in current economic conditions. Rising interest rates could lead to investors shifting away from technology sectors and into other sectors that are more immune from inflation and interest rate increases.

Historical Performance: In a stagflationary environment, hedge funds outperformed the S&P500

Long-short hedge fund portfolios can perform well in a low-inflation environment. This is when there is slow economic growth, high inflation and rising interest rates. This claim is supported by historical data, which shows that long-short hedge fund performance has been consistent with this.

Outperformed

The S&P 500 in the 1970s stagflationary period. The annualized return for long-short equity funds was 14.1% from 1970 to 1980, as compared to 5.9% for the S&P 500. Long-short hedge was popular during the 1970s stagflation.

Funds

They were able take advantage of market inefficiencies and both short-sold overvalued securities and bought undervalued securities. This allowed them to generate profits in challenging markets. The flexibility of long-short hedge fund allows them to buy and sell securities, which can allow them to adapt to changing market conditions. This can help them excel in an economic environment that is challenging.

There are risks

Market risk: Like any equity investment, LBAY can be affected by a major downturn in the stock market. This could adversely impact the ETF's performance.

Liquidity Risk: LBAY invests primarily in stocks. However, some stocks are small and illiquid which makes it difficult to liquidate those investments if necessary.

Manager risk: The success of LBAY depends heavily on the skills and expertise of its managers. It could have a negative impact on performance if the managers make poor investments or fail to implement the strategy properly.

Short-selling risk: LBAY engages short-selling. This involves borrowing shares from a company and then selling them in the hope that the price will fall. The short-seller must buy back the shares at a higher price if the price rises. This can lead to significant losses.

Concentration risk: LBAY has a portfolio that is concentrated in a particular strategy or sector. This can increase its exposure to risks such as changes in interest rate, inflation, and regulatory policies.

Risk of expense ratio: Like any ETF, LBAY charges an expenses ratio which can lower the fund's return.

Conclusion

We believe that LBAY’s long-short equity strategy offers better returns and risk management than long-only ETFs or the S&P 500 in a rising inflation and interest rate environment. High-yield, market neutral, value-focused, dividend-paying strategy reduces downside risk while also offering potential capital appreciation and income. Market trends have shown that long-short fundamental-equity hedge funds outperform long only managers. This makes LBAY an attractive investment option for investors seeking diversification and better risk management. We also like the fund's short-tech strategy (which Cathie Wood would love (

ARKK

() and long, high-yielding blue chip with solid moats.

This article was written and edited by

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Disclosure:

I/we do not have any stock, option, or similar derivative position in any company mentioned and we don't plan to start any within the next 72-hours.

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