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Active Alts launches Contrarian ETF

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Exchange traded fund industry veteran Brad Lamensdorf has launched the Active Alts Contrarian ETF, an actively managed ETF that seeks capital appreciation by investing in companies with solid fundamentals that have very large short positions and are subject to a short squeeze.

As a secondary investment strategy, Lamensdorf intends to lend out the hard-to-borrow securities in an effort to earn a stream of monthly income which has the potential to enhance the total return.
 
“SQZZ is the first ’40 Act fund to employ this novel strategy of seeking to capitalise on “short squeeze” opportunities and generate potential income by getting paid for lending securities,” says Lamensdorf.
 
The SQZZ ETF portfolio manager screens securities that are highly shorted to isolate indications of unexpected values.
 
“Because of changing market conditions or smart management moves, highly shorted securities may have promising fundamentals, creating the potential for a profitable short squeeze,” says Lamensdorf.
 
The ETF invests in securities with market capitalisation of USD250 million or greater with at least USD1 million a day in trading volume. The strategy does not have to be fully invested at all times, and it can raise 100 per cent cash if warranted by market conditions, which may allow the fund to outperform in bear markets.
 
Until a short squeeze materialises, SQZZ investors earn current income by receiving the majority of the interest from banks who are paid by borrowers of the security. Typically, when securities are loaned from an investor’s margin account, the investor earns nothing – the payment is kept by the bank or broker. SQZZ is not typical; when it loans securities, the bank will pay the ETF the majority of the interest it may earn, that income goes to SQZZ investors in the form of a dividend.
 
“While securities lending is commonplace, SQZZ will be partnering with major banks to optimise which securities to lend and to get the most income for the fund, which may bolster returns,” says Lamensdorf.

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