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Alts Democratized: A Practical Guide to Alternative Mutual Funds and ETFs for Financial Advisors, + Website by Robert J. Martorana, Jessica Lynn Rabe

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Chapter 13Dedicated Short Bias Funds

Synopsis

Dedicated Short Bias Funds are the most heterogeneous of all Lipper alternative classifications. The funds have inverse exposure to a wide array of securities from across the globe and across the asset class spectrum. This diversity generates an enormous dispersion of returns, and makes these funds ideal for hedging and tactical bets. These products are extremely risky, however, and misuse has led to ongoing regulatory scrutiny.

Definition

Funds that employ portfolio strategies consistently creating a “net short” exposure to the market. This classification also includes short-only funds, i.e., funds pursuing short sales of stock or stock index options.

Definition of the Lipper classification: Dedicated Short Bias Funds

Dedicated Short Bias Funds aim to capture the inverse or negative multiple of an index's return. Seventy-four percent of the 166 funds in this classification are packaged in an exchange-traded fund (ETF) wrapper. These funds track underlying indexes composed of stocks, bonds, commodities, and equity sectors. Consequently, these products are usually used by professional traders and investors for tactical bets, or to hedge long exposures within portfolios. The majority of these funds are highly leveraged, and this leads to a wide dispersion of returns; in any given time period, this classification typically has the broadest range of returns of any Lipper alternative classification.

Depreciation has been a gale-force ...

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