Don't Fear the Bear: 2 Ways to Face a Down Market

As a financial advisor, your value proposition often shifts from "growth seeker" to "risk manager" the moment market volatility spikes. While traditional diversification (bonds, cash, or alternatives) remains a staple, the current environment often demands more surgical tools for downside preservation.

AdvisorShares offers two distinct, actively managed short ETFs—Dorsey Wright Short ETF (DWSH) and Ranger Equity Bear ETF (HDGE)—that provide advisors with transparent, liquid, and tactically flexible ways to hedge equity exposure or seek alpha during market declines. Unlike passive inverse ETFs that can suffer from daily rebalancing decay, these strategies leverage active security selection to identify the "weakest of the weak."

Here is how these two strategies differ and where they fit within a client’s portfolio. 

1. Technical Approach: AdvisorShares Dorsey Wright Short ETF (DWSH)

Strategy: Relative Weakness

Best For: Tactical hedging based on price momentum.

DWSH is built on the core philosophy of Relative Strength—specifically, its inverse. The fund identifies and shorts securities with the highest relative weakness within a large-cap universe.

• How it Works: The process is purely systematic and rules-based. It shorts approximately 75–100 stocks that are technically broken and underperforming their peers.
• The Advisor Advantage: Because momentum often persists on the downside during corrections, DWSH potentially allows you to "shelter from market storms" by owning the laggards that are likely to fall the hardest and fastest.
• Portfolio Fit: Use DWSH as a "satellite" holding to potentially reduce the beta of a broad equity allocation during periods of confirmed technical weakness.

2. Fundamental Approach: AdvisorShares Ranger Equity Bear ETF (HDGE)

Strategy: Forensic Accounting

Best For: Fundamental hedging and "quality-based" shorting.

HDGE doesn't care about price charts; it cares about the "truth" behind the balance sheet. This fund uses intensive fundamental research and forensic accounting to identify companies with low earnings quality or aggressive accounting practices.

• How it Works: The managers look for "red flags" like unsustainable debt, earnings manipulation, or deteriorating business models. It typically holds 20–75 short positions.
• The Advisor Advantage: HDGE offers a way to profit from corporate failures or fundamental collapses. It provides a "buy and hold" option for hedging that is less reliant on daily market timing and more on the eventual market correction of overvalued, low-quality firms.
• Portfolio Fit: Ideal for advisors who want to implement a synthetic long/short strategy or preserve a portfolio against a "fundamental" bear market where earnings quality is being reassessed.

Strategic Applications for Your Practice

As an advisor, these funds solve several structural problems:

1. Hedging Unrealized Gains: Instead of selling a long-term winner and triggering a massive tax event, you can purchase an active short ETF to offset the downside risk temporarily.
2. Shorting in Restricted Accounts: Traditional shorting (borrowing shares) is often restricted in ERISA-governed accounts or IRAs. Because these are ETFs, they can be purchased in almost any brokerage account to provide the same inverse exposure.
3. Removing Emotion: Shorting is notoriously difficult for clients (and advisors) to time emotionally. The systematic, active management of DWSH and HDGE takes the guesswork out of "when to sell" and "what to cover."
4. No Daily Reset: Unlike most passive inverse ETFs that track daily returns and risk compounding decay, DWSH and HDGE function like "short only" hedge funds in an ETF wrapper, avoiding a mechanical daily reset by holding positions as long as the managers' technical or fundamental theses remain valid. 

The Bottom Line

Market volatility is an opportunity for advisors to demonstrate proactive risk management. By incorporating active short strategies like DWSH or HDGE, you move beyond the "wait and see" approach, providing your clients with a sophisticated defense that is both transparent and tactically sound.