The First Short Squeeze ETF Strategy Hits the Market

Investors can now capitalize on a potential quick turnaround in a heavily shorted segment of the market through a new actively managed contrarian exchange traded fund play that bets on companies with heavily shorted positions.

On Wednesday, StrategyShares launched the Active Alts Contrarian ETF (NasdaqGM: SQZZ). SQZZ has a total expense ratio of 1.95%.

Brad Lamensdorf, founder and owner of Active Alts Inc., will manage the short squeeze fund. Lamensdorf is no stranger to ETFs as he also helps manage the AdvisorShares Ranger Equity Bear ETF (NYSEArca: HDGE), which focuses on weak companies to short.

“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,” Lamensdorf said in a note.

SQZZ will try to generate current income and capital appreciation by investing in equity securities of domestic and foreign issuers traded on a U.S. exchange that the manager believes may be subject to a so-called short squeeze, along with cash and cash equivalents like money market funds and investment-grade short-term debt. The fund may even go 100% cash – it currently holds 85% cash, as it waits for opportunities.

The sub-advisor will pick out short squeeze opportunities through both fundamental factors, like quality of earnings and fundamental stability of business, along with technical factors, such as price and volume characteristics and relative strength. Additionally, the manager will identify securities where short interest is significant, rising or expected to increase.

Basically, the fund managers will pick out securities that have a higher potential for capital appreciation, which could result in a short squeeze.