Investors can identify securities at risk of a short squeeze by monitoring short interest – the total number of shares sold short as a percentage of total shares outstanding, along with the short-interest ratio – the total number of shares sold short divided by average daily volume.
Moreover, for the fund’s secondary income objective, SQZZ can lend out securities from the fund’s underlying portfolio to short sellers and other market participants for a fee. [Making Sense of ETF Securities Lending]
However, due to its frequent portfolio transactions, investors should be prepared for higher portfolio turnover and the potential tax consequences. The high turnover, which may involve commissions and other transaction fees, would also help explain the higher expense ratio for the fund.
Brad Lamensdorf, founder and owner of Active Alts Inc., will manage the proposed short squeeze fund. Lamensdorf is no stranger to ETFs as he also helps manage the AdvisorShares Ranger Equity Bear ETF (NYSEArca: HDGE), which targets weak companies to short.
For more information on new fund products, visit our new ETFs category.