Hedgeye 130/30 Equity ETF (HELS)

Imagine a stock fund where the manager does not just pick winners — she also picks losers and bets against them. A 130/30 fund is a bet on the manager’s ability to distinguish good companies from bad ones. The 130 means 130 percent of the portfolio is invested in stocks the manager likes; the 30 means 30 percent of the portfolio is short-sold — borrowed and sold with the expectation of buying them back cheaper later. The net effect is still a long position (100 percent invested long), but with an active short bet layered on top.

The mechanics of 130/30

A 130/30 strategy is a form of long-short equity management that sits in the middle ground between vanilla active stock picking and pure hedging. Traditional active funds pick stocks they believe are undervalued and overweight them, and they underweight stocks they dislike. The best they can do is have 100 percent of the portfolio in longs and zero percent in shorts.

A 130/30 fund goes further. It allocates 130 percent of the portfolio to long positions in stocks it likes and 30 percent of the portfolio to short positions in stocks it dislikes. To do that, it borrows stock at the short end, which requires paying a borrow cost and a short rebate (interest paid to the short seller by the broker). The cash proceeds from the short sales are reinvested into the long positions, so the portfolio ends up 100 percent net long — every dollar of investor capital is deployed, with no cash drag — but with the additional leverage and conviction from the short bet.

The name is literal: 1.3 minus 0.3 equals 1.0 net exposure. That math means a 130/30 portfolio is still 100 percent exposed to the broad stock market’s direction — if the market crashes, a 130/30 fund will fall — but its returns relative to the market depend entirely on the manager’s stock-picking skill. In a market up 10 percent, if the fund’s long picks are up 12 percent and its shorts are down 5 percent (so the short profit is 5 percent), the fund beats the market.

The short selling component and its risks

Shorting is the opposite of buying: you borrow a stock, sell it at today’s price, and later buy it back at a lower price (hopefully) and return it to the lender. Your profit is the difference. The risk is that the stock rises instead of falls — theoretically without limit. If you short at $100 and the stock rises to $200, you lose $100 per share. Shorting is a leveraged bet that the stock will decline.

In HELS, the short positions make up 30 percent of the portfolio’s notional exposure. The shorts are financed by the proceeds of the longs, so there is no extra margin or leverage in the classical sense. But there is reinvestment risk: the shorts’ borrow cost, which varies daily, reduces returns; if the short stocks rally sharply instead of falling, the fund’s outperformance collapses; and the mechanical process of rolling short positions (borrowing stock, returning it, re-borrowing) introduces slippage and operational friction.

Short squeezes — situations where a heavily shorted stock rallies because shorts are forced to buy it back — can inflict sudden losses on short positions. This is rare for large-cap stocks (which is HELS’ universe) but remains a tail risk. More commonly, the short positions act as a drag on returns in sustained bull markets, because the shorts lose money while the market rises.

Hedgeye’s approach and active conviction

Hedgeye, founded in 2008 by Keith McCullough, runs HELS as a concentrated, conviction-driven stock-picking strategy. Unlike a 130/30 fund that simply applies a mechanical rule to an active manager’s picks, HELS’ shorts are not merely the inverse of the longs — they are separately researched bets on overvalued or deteriorating companies. The fund holds roughly 40 to 50 long positions and 20 to 30 short positions, all selected through Hedgeye’s proprietary research process.

The fund is more concentrated than a broad market index and therefore more volatile. In years when Hedgeye’s stock picks outperform, HELS will deliver strong returns. In years when the fund’s picks underperform or the shorts rally, HELS will lag — and the 30 percent short exposure means the fund can lag the market sharply if those shorts spike higher during a broad rally.

Hedgeye’s strategy has been built on themes including sectoral rotation, earnings quality, and macroeconomic trends. The research is publicly oriented toward identifying which sectors and companies will benefit most from shifting economic conditions. That thematic tilt means HELS is not a neutral, representative long-short fund; it is a bet on Hedgeye’s views about the current state of the economy and where returns are most likely to emerge.

Performance tracking and comparisons

HELS can be compared to three different benchmarks depending on the question being asked. Against the broad stock market (S&P 500), HELS’ performance depends on whether Hedgeye’s longs beat the market more than the shorts lose to the market. Against other long-short equity strategies, the comparison is on both absolute returns and volatility. And against itself year over year, the fund shows whether the conviction-driven approach is consistent.

The challenge is that a 130/30 strategy’s performance in any given year is heavily influenced by factors that have nothing to do with stock-picking skill: the short rebate (how much lenders pay short sellers for borrow), the volatility of the short positions, and the correlation between the fund’s longs and shorts. In a year where shorts rally hard, a brilliant long bet will be swamped. In a year where shorts decline and longs rally, mediocre stock picks will look good because the short bet is winning.

HELS’ track record since its 2015 launch is available in its fact sheet and prospectus, though the strategy pre-dates the ETF in Hedgeye’s other funds. Any evaluation of past performance must account for the varying contribution of skill versus luck in short positioning.

Costs and operational complexity

HELS has a higher expense ratio than a passive index fund because active stock research, short borrowing, and portfolio management cost money. There is also the cost of short borrowing itself — the rebate paid to the fund for lending its shares. In recent years, the short rebate has been quite low or negative (meaning the fund pays to borrow), which erodes returns. If short rebates rise significantly, the fund’s economics improve.

Additionally, the fund’s holdings have bid-ask spreads, and the mechanics of rolling both longs and shorts introduce transaction costs that are not fully visible in the expense ratio but do reduce returns. A fund with 40 long and 30 short positions, all actively managed and rebalanced, has higher implicit costs than a passive alternative.

Who HELS suits and the conviction required

HELS is for investors who believe Hedgeye’s research is superior and who have conviction that active stock picking — combined with the ability to short stocks correctly — can beat the market. It is also suited to investors who want a full equity allocation but believe the market has excesses in particular sectors that should be actively hedged through shorting.

HELS is unsuitable for investors who believe markets are efficient and cannot be beat consistently, or who are uncomfortable with the idea that their fund manager is betting against specific companies and hoping they decline. It is also unsuitable for investors with a very long time horizon who expect broad bull markets to dominate; during sustained rallies, the short positions will be a drag, and the outperformance from the longs will need to be large enough to overcome that headwind.

The fund requires a degree of active conviction: you must believe that Hedgeye’s research will produce returns above the cost of running the strategy. If you have no view on that, a passive broad-market fund is simpler and cheaper.

How to research HELS and evaluate its strategy

Start with Hedgeye’s public research and strategic writings — available on their website — to understand how they analyze markets and identify stocks to buy and short. Read the fund’s prospectus and most recent fact sheet for the current composition, expense ratio, and track record. Compare HELS’ returns to the S&P 500 and to other long-short equity ETFs over rolling multi-year periods, being careful to account for different time periods and market regimes.

Understand that a 130/30 strategy’s returns are highly sensitive to short positioning performance. A fund might have brilliant long picks and still underperform if the shorts rally. Conversely, mediocre longs can be masked by declining shorts. Over time, consistent outperformance suggests genuine stock-picking skill; a year or two of good results could just be lucky short positioning.

Finally, assess your tolerance for volatility and concentration. HELS is more volatile than a passive index fund because it holds fewer positions and takes active directional bets through both longs and shorts. If you are uncomfortable with that, HELS is not the right vehicle, regardless of how good the manager’s track record looks.