A Long/Short Changebridge ETF to Capitalize on Market Turbulence

Traditional equity and fixed income strategies can help investors survive market storms. Still, this year’s coronavirus outbreak has reminded investors to consider allocating a portion of their portfolio to an alternative strategy – designed to thrive during periods of elevated volatility.

Tom Lydon, CEO of ETF Trends spoke with Ross Klein, CEO of Changebridge Captial, LLC, and Vince Lorusso, Partner and Portfolio Manager for Changebridge, about one such strategy, the Changebridge Capital Long/Short Equity ETF (CBLS). The Fund offers investors a long book and short book of individual equities, designed to capitalize on rising and falling stock prices, respectively.

CBLS is an actively managed, liquid alternative strategy.  The team establishes long positions in companies the managers believe will rise in price while taking short positions in companies whose stock the managers believe will fall in value.  The objective is a strategy that can achieve long-term capital appreciation while minimizing volatility.

Describe the role of the long book for an investor’s portfolio?

Klein: The portfolio’s long book includes stocks that do not garner much attention from Wall Street analysts but may benefit from recent trends. For example, as the world fixates on which pharmaceutical companies will produce vast quantities of a particular vaccine, the team at Changebridge is looking for bottlenecks throughout the healthcare supply chain. One of those bottlenecks is in delivery logistics.

Lorusso: The air-cargo industry plans to deliver as many as 20 billion Covid-19 vaccination doses, and portfolio holding Atlas Air Worldwide has a platform and assets that will help distribute those products. Tailwinds for customized shipping solutions extend beyond pharmaceuticals and into the areas of e-commerce, high-tech electronics, and perishables. Atlas Air Worldwide ships everything from precious perishables to heavy construction equipment quickly, safely, and reliably.

How does the structure of CBLS work for other holdings?

Lorusso: Another Fund holding, Sharps Compliance, is an industry leader in medical waste removal. The company’s programs for safe medical waste pickup, transportation, treatment, and disposal are critical to the world’s vaccine supply chain initiatives. Used needle disposal and infectious waste treatment require regulatory compliance and environmental sensitivity, which few industry participants can offer. Sharps Compliance provides waste management solutions to over 50,000 customers nationwide.  “Pick-and-shovel” plays like Atlas Air Worldwide and Sharps Compliance offer investors exposure to societal needs without relying on the sales of one product producer.

What other sectors will Changebridge focus on?

Klein: Investment opportunities identified by the Changebridge team extend beyond the healthcare sector. Skyline Champion, the #2 manufactured housing player in the US, is another long position in the portfolio. The business is positioned to capitalize on the growing desire of consumers to move into affordable homes. The pandemic accelerated the shift towards home buying, but it is underpinned by millennials, making up the largest share of home buyers. Their migration to the suburbs may last for years, benefitting Skyline Champion and its investors.

How will Changebridge adapt for investor portfolios when considering sudden

volatility or other changes?

Lorusso: Periods of volatility can also create headwinds, which is when alternative strategies begin to differentiate themselves from traditional investments. Individual equity short positions, which stand to profit as stock prices decline, require particular investing expertise and are not widespread but are an important part of the CBLS offering. One of the portfolio’s larger short positions is Intel Corp, which struggles to compete with AMD’s pipeline of innovation when tech behemoth Apple is abandoning chips designed by Intel in favor of its own products. The team at Changebridge believes Intel may be facing long-term competitive headwinds.

With these headwinds in mind, what has changed for the consumer?

Lorusso: On the consumer side, work-from-home patterns have accelerated the adoption of online purchases in many categories, including the sale of athletic gear. Providing evidence of this shift, Nike recently reported an 83% increase in online sales, resulting in a sales mix that was 30% derived from e-commerce.  Nike had previously expected to hit that 30% threshold for e-commerce sales in the year 2023.  The fund has taken a short position in Foot Locker, expressing that many of those consumers may not run back to a brick & mortar store for sneaker purchases.

Why CBLS?

Klein: For investors seeking the active share that often stems from a portfolio of high conviction ideas, the intraday liquidity, transparency, and tax efficiencies of ETFs, and seeking a lower correlation to equity indices, CBLS is a liquid alternative strategy for sophisticated investors to consider.

For a complete list of portfolio holdings and to read the fund’s prospectus, please visit www.changebridgefunds.com.

For more market trends, visit ETF Trends.